Corporate governance research and the business case for gender diversity

Accounting

Speaker:Gary Abrahams, University of Exeter Business School
Date: Wednesday 25 May 2016
Time: 14:30 - 16:00
Location: Kolade Teaching Room, Building One

Further details

Abstract

The business case for gender diversity in the boardroom is predicated on the assumption that an increase in the gender balance of boards will improve board effectiveness and firm profitability. The results of empirical research into the direct link between gender diversity and improved financial performance have however been inconclusive. This has led many researchers, including ourselves, to conclude that there is no discernible business case for gender diversity. This motivates us to ask two related questions. First, why are the results of governance studies which try to show a direct link between gender and financial performance so contradictory, and what does this say about governance research in this area? Second, given ambivalent results, why do diversity advocates continue to push the business case for gender equality? In answering these two questions we highlight that the relationship between board composition and firm performance is nuanced and affected by a number of intervening factors. This makes it very difficult to predict a direct and generalised relationship between gender and financial performance. As such, research which focuses on studies of large archival sets of financial statements in order to predict a direct and generalised relationship between these two variables board composition can result in ambivalent and potentially unhelpful results. We recommend that governance research into the impact of gender on firm performance focuses on some of the behavioural factors of how boards interact, and how gender may impact board behaviour and effectiveness. Further, we make recommendations which have potential policy recommendations for regulators. We urge regulators not to rely on the business case for gender diversity and that such reliance, in light of ambivalent research findings, can undermine the progression of women in the boardroom. Furthermore, gender diversity is not a panacea for improved board effectiveness and cannot be viewed in isolation as a means of improving board effectiveness. In particular, we highlight the importance of the functional and firm specific skill levels of directors Board members which lack the necessary skill level will negate any diversity which gender might bring to the boardroom. We conclude that equality in the boardroom, and more effective boards, may be better achieved through programmes which mentor and provide opportunities to improve skill levels of potential women candidates for board appointments.