Gender diversity and the spillover effects of women on boards

• Date: 01 January 2021
• Published date: 01 January 2021
• DOI: http://doi.org/10.1111/corg.12339

EDITOR'S PICK

Gender diversity and the spillover effects of women on boards

Maria Boutchkova | Angelica Gonzalez | Brian G.M. Main | Vathunyoo Sila

The University of Edinburgh Business School,

Edinburgh, UK

Correspondence

Angelica Gonzalez, The University of

Edinburgh Business School, Edinburgh, UK.

Email: angelica.gonzalez@ed.ac.uk

Abstract

Research Question/Issue: This study seeks to understand the circumstances under

which board behavior is affected by gender diversity. The “reasoned action approach”

is used as a lens through which to assess the extent that the behavior of the board

varies with its gender diversity.

Research Findings/Insights: The study uses archival data from a panel sample of

80,395 directorships observed between 1998 and 2012. Boardroom gender diversity

is significantly related to director personal responsibility (board attendance), CEO

accountability, and risk taking. Our findings highlight the key importance of the expo-

sure of male directors to women directors on boards beyond the focal board. This

suggests a positive externality or a spillover effect.

Theoretical/Academic Implications: The empirical findings of this study highlight the

importance of allowing for the operation of social norms when studying boardroom

decision making. Experience gained by male directors of working with women direc-

tors on other boards, beyond the focal board, is shown to enable women directors to

contribute more effectively.

Practitioner/Policy Implications: This study offers encouragement to policy makers'

intent on increasing the presence of women on corporate boards. These results point

to a spillover effect: there is an observed impact of women on boards that acts not

only directly on the board on which they sit but also through the network of boards

on which their male counterparts sit.

Video Abstract: https://youtu.be/ZlADhUUdZrA

KEYWORDS

Corporate governance, board of directors, gender diversity, reasoned action approach

1|INTRODUCTION

There have been calls (Adams, de Haan, Terjesen, & van Ees, 2015;

Hoobler, Masterson, Nkomo, & Michel, 2018; Kumar & Zattoni, 2016)

for more research on the characteristics of female directors and the

contributions they make to company performance. The interest in

evaluating the impact of women on boards is driven not only by an

increased awareness of the importance of diversity and inclusion

(Bartlett & Preston, 2000) but also from a practical desire to improve

corporate governance systems that have all too often come up want-

ing. Whether stemming from the excessive risk taking that surrounded

the financial crisis (e.g., Anglo Irish, AIG, RBS, and Lehman Brothers),

insufficient accounting oversight (e.g., Enron, Olympus, Parmalat,

and Toshiba), poor operational control (e.g., Siemens, Volkswagen, and

Received: 2 October 2019 Revised: 6 August 2020 Accepted: 10 August 2020

DOI: 10.1111/corg.12339

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reprodu ction in any medium,

provided the original work is properly cited.

© 2020 The Authors. Corporate Governance: An International Review published by John Wiley & Sons Ltd

2Corp Govern Int Rev. 2021;29:2–21.wileyonlinelibrary.com/journal/corg

Wells Fargo), or straightforward corrupt practices (e.g., Petrobras and

Samsung), recent experience adds up to a far from perfect record.

In some cases—and the Lehman Brothers company name only

serves to highlight the issue (Adams & Ragunathan, 2017)—the ques-

tion has been asked whether things might have turned out for the

better had there been more women on the board.

The importance of corporate governance is well recognized

(Bebchuk, Cohen, & Ferrell, 2009; Shleifer & Vishny, 1997). The board

of directors plays a key role in corporate governance (Adams,

Hermalin, & Weisbach, 2010), and in recent years, the role of female

directors has received particular attention (Adams et al., 2015;

Adams & Ferreira, 2009; Terjesen, Sealy, & Singh, 2009). Although a

gender‐diverse board could be expected to improve board decision

making and hence firm performance (Kumar & Zattoni, 2016), the

empirical evidence has remained inconclusive (Ferreira, 2015; Larcker,

Richardson, & Tuna, 2007). This paper approaches the question

through the lens of the reasoned action approach

1

(Fishbein &

Ajzen, 2010), which affords a key role to social norms in the formation

of the attitudes and intentions that determine board behavior. We

argue that the extent to which these social norms (in terms of what is

right under various circumstances) are influenced by the presence of

women on the board will depend on the extent to which they are

taken seriously and allowed to contribute effectively to shaping the

board's norms, attitudes, and intentions.

The gender diversity of the board clearly has the potential to

impact on the social norms of the board (Beaman, Chattopadhyay,

Duflo, Pande, & Topalova, 2009; Terry, Hogg, & White, 1999; Van

Vugt & Iredale, 2013). The novelty of our research is that we allow for

experience of gender diversity on other boards to affect the extent to

which gender diversity impacts on social norms—and hence behavior

—of the focal board. This spillover effect is hypothesized as arising

through some of the male directors on the focal board also having

experience of working alongside women on other boards. This effect

forms a central part of the paper. The impact of gender diversity on

board behavior is measured in terms of outcomes such as the record

of board meeting attendance by individual directors, the performance

sensitivity of CEO separations, and the risk profile of the board's

investment decisions.

The role of the spillover effect in enhancing the effective impact

of women on the board is attributed to the enhanced legitimacy that

they are accorded by male colleagues who have experience of work-

ing alongside female directors on other boards. The issue of individual

women directors being taken seriously is highlighted in Harrison,

Price, and Bell (1998), who drew a distinction between surface‐level

gender diversity and deep‐level gender diversity. The productive

potential of deep‐level diversity is undermined by social categoriza-

tion processes that inhibit the effective operation of the board. The

development of gender‐based fault‐lines within the board (Lau &

Murningham, 1998; Li & Hambrick, 2005) can inhibit the contribution

of female directors to social norms and effective board decision mak-

ing (Kaczmarek, Kimino, & Pye, 2012). The origin of these gender‐

based fault lines may lie in a form of gender stereotyping best summa-

rized by the “think manager, think male”aphorism (Schein, 1975;

Schein, Mueller, Lituchy, & Liu, 1996). This explanation of the bias

against women in senior positions has been further developed by

Eagly and Karau (2002) as role congruity theory. Such biased percep-

tions can lead to a “reactive devaluation”(Ross & Stillinger, 1991),

whereby the contributions of women in senior positions are not taken

as seriously as they merit.

Because female directors are found to be associated with better

monitoring behaviors (Adams & Ferreira, 2009; Adams &

Ragunathan, 2017; Huse, Nielsen, & Hagen, 2009), we first consider

attendance at board meetings as an observable outcome that relates

to a director's attitude toward monitoring and examine the difference

in this behavior among individual male directors who work alongside

women. We find that male directors who work alongside female direc-

tors on other boards (“externally connected men”) are associated with

better board meeting attendance in the presence of female directors

on the focal board. Our results suggest that the presence of women

on other boards has a “spillover effect”on men's susceptibility to

influence by the social norms of female directors, in terms of

attendance.

We further find that on boards with female directors, the propor-

tion of externally connected men (i.e., working alongside women on

other boards) is positively associated with the performance sensitivity

of CEO turnover, a commonly used measure of CEO accountability.

Overall, we find that the presence of female directors on a board

alongside externally connected male directors is associated with

resource allocation decisions that result in lower firm risk. This analy-

sis is conducted using data on 80,395 directorships in the United

States between 1998 and 2012.

The study contributes to the existing literature in the following

two ways. First, it documents a spillover effect in terms of how effec-

tively female directors influence the social norms and behaviors of the

board. This spillover effect arises from male directors being in contact

with female directors across different boards. The difference in out-

comes is seen in terms of personal responsibility as manifested in board

attendance (Adams & Ferreira, 2009), accountability regarding the sen-

sitivity of CEO departures to performance (Chen, Cumming, Hou, &

Lee, 2016; Lucas‐Perez, Mınguez‐Vera,Baixauli‐Soler, Martin‐Ugedo, &

Sanchez‐Marin, 2015), and the risk profile of the board's resource allo-

cation decisions (Mateos de Cabo, Gimeno, & Nieto, 2012).

Second, we contribute to the literature that documents the

business case for gender diversity. In recent years, many countries

have set targets or quotas aimed at improving what had previously

been an underrepresentation of women in the boardroom (Isidro

& Sobral, 2015; Marquardt & Wiedman, 2016; Seierstad, Warner‐

Sderholm, Torchia, & Huse, 2017; Terjesen, Aguilera, & Lorenz, 2015).

These decisions were often accompanied by supporting arguments

that alluded to the improved business performance of companies with

more diverse boards (Bear, Rahman, & Post, 2010; Campbell &

Minguez‐Vera, 2008; Ellwood & Garcia‐Lacalle, 2015; Francoeur,

Labelle, & Sinclair‐Desgagn, 2008). We strengthen such business case

arguments by providing evidence of a positive externality or spillover

effect arising from the presence of women in the boardroom, which

presents in the form of male directors being more responsive to the

BOUTCHKOVA ET AL.3