Sector News

The Case for Women on Boards

February 2, 2015
Diversity & Inclusion
Over the years, there have been many studies on the effect of women on boards. According to a recent report from Catalyst, a nonprofit group aimed at expanding opportunities for women at work, women hold 19.2% of S&P 500 board seats in the United States.
 
But for every study that finds a positive relationship between women board members and the company’s financial performance, there’s another with the opposite result. An article recently published in the Academy of Management Journal sorts through the studies and seeks to explain the discrepancies.
 
Authors Corinne Post and Kris Byron, management professors at Lehigh University and Syracuse University respectively, reviewed 140 studies comprised of more than 90,000 firms from 35 countries between 1989 and 2014. The authors sorted the studies according to how financial performance was viewed: (1) profitability, or how well the firm utilized its assets and investments to generate income (internal view) or (2) market performance, reflecting external perceptions and stock performance (external view).
 
Fast Company spoke with Post about the article and her research centering on women on boards of directors. Post says the studies generally ignore the multi-dimensionality of a firm’s financial performance and neglect the context in which boards operate. Overall, when women are on boards, companies are more profitable, Post says. These boards spend more time monitoring activities such as audits, and are more engaged in strategic advising in areas like resource allocation and markets.
 
The authors found that female directors have different experiences and backgrounds from their male counterparts, and bring this knowledge and these perspectives to the position. Women are generally more inclusive in their communications and interactions with others, paying attention to who speaks up and who doesn’t, Post says.
 
Specifically, the researchers found that female board representation is positively related to profitability and market performance in countries with stringent shareholder protections such as the United States, Malaysia and Israel. The idea is that when a group’s held to a higher standard of accountability, it will draw on the knowledge of everyone in that group, leading to better decision making, Post says.
 
Post says there’s definitely room for improvement, as the number of women on boards doesn’t reflect the number of women in management positions.
 
So, when filling an open seat on the board, what’s a company to do? Post offers the following tips:
 
IT’S NOT A NUMBERS GAME
Don’t fill spots based on gender only. Focus instead on recruiting members with knowledge, different experiences and perspectives. Work to develop a culture of inclusion within the company.
 
BE AWARE OF MARKET FACTORS
Consider the level of gender parity in the market (i.e. whether the market is receptive to female directors). Different markets react to women on boards in different ways, Post says.
 
ENHANCE SHAREHOLDER PROTECTIONS
Companies doing business in countries with shareholder protections are more likely to have directors who request more information because directors are held accountable for their decisions. For countries that don’t have laws in place to protect shareholders, companies should create a culture that motivates boards to act in similar, more accountable ways.
 
By Lindsay Lavine
 
Source: Fast Company
 

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