The Morals of the Women on Boards Story: Global Board Gender Diversity Efforts Still Need Fairness-Based Arguments to Move Regulation to the Next Chapter

• Author: Diana C. Nicholls Mutter
• Pages: 235-275

The Morals of the Women on Boards Story:

Global Board Gender Diversity Efforts Still

Need Fairness-Based Arguments to Move

Regulation to the Next Chapter

D

IANA

C. N

ICHOLLS

M

UTTER

*

I. Introduction

Canada and the United States have some of the lowest rates of female

participation on public boards among nations that have introduced

regulation aimed at addressing the underrepresentation of women on

boards.

1

The impact of increasing board diversity (and, by extension, legislation or

regulation aimed at increasing board gender diversity) depends upon the

board’s influence itself.

2

There are a number of reasons to begin with the

board when discussing the underrepresentation of women in the upper

echelons of corporations. First, corporate law provides directors with a great

deal of power and responsibility, placing the board at the top of the

corporate hierarchy.

3

Furthermore, directors are responsible for operational

and strategically important aspects of corporate oversight including voting

* Corporate and securities lawyer at SkyLaw Professional Corporation; LL.M., Osgoode

Hall Law School, York University. Significant portions of this article were prepared in

connection with the author’s master’s thesis.

1. Currently, women represent 17 percent of directors of public company boards in Canada.

See CSA M

ULTILATERAL

S

TAFF

N

OTICE

58-311: R

EPORT ON

F

IFTH

S

TAFF

R

EVIEW OF

D

ISCLOSURE

R

EGARDING

W

OMEN ON

B

OARDS AND IN

E

XECUTIVE

O

FFICER

P

OSITIONS

(October 2, 2019), https://www.osc.gov.on.ca/en/SecuritiesLaw_sn_20191002_58-311_staff-

review-women-on-boards.htm. Boards of companies on the Russell 3000 Index are comprised

of approximately 20 percent women. See Rachel Feintzeig, Women’s Share of Board Seats Rises to

20%, W

ALL

S

T

. J. (Sep. 11, 2019), https://www.wsj.com/articles/womens-share-of-board-seats-

rises-to-20-11568194200. Other jurisdictions with similar securities laws that have introduced

disclosure-based policies aimed at increasing female participation on public boards tend to have

much higher rates of female directors. For instance, as will be discussed in more detail below,

Australia has 29.7%. See Greta Stonehouse, Not Enough Women on ASX200 Boards: AICD,

7N

EWS

(July 24, 2019), https://7news.com.au/business/not-enough-women-on-asx200-boards-

aicd-c-365480.

2. A

ARON

A. D

HIR

, C

HALLENGING

B

OARDROOM

H

OMOGENEITY

: C

ORPORATE

L

AW

,

G

OVERNANCE

,

AND

D

IVERSITY

165 (Cambridge University Press 2015).

3. Id. at 26. See also James A. Fanto et al., Justifying Board Diversity Board Diversity, 89 N.C.

L. R

EV

. 901, 906 (2011); Sonja S. Carlson, Women Directors: A Term of Art Showcasing the Need

for Meaningful Gender Diversity on Corporate Boards, 11 S

EATTLE

J.

FOR

S

OC

. J

UST

. 337, 338

(2012).

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236 THE INTERNATIONAL LAWYER [VOL. 53, NO. 2

on mergers and acquisitions, approving financial statements and bylaws, and

issuing dividends.

4

The board is responsible for monitoring and approving

the actions of management. It also has a role in advising executives and in

providing important external networks and signals to the public.

5

There is a prominent theory that once boards diversify other levels of the

corporation may in turn see greater diversity. For instance, a Canadian

Conference Board study found that corporations with more women on their

boards in 1995 had thirty percent more women in executive roles by 2001, as

compared to corporations with all-male boards in 1995.

6

A study conducted

using data from the MSCI All World’s Index published in 2016 found

similar results, namely that those corporations with three or more female

directors had a higher average percentage of women in senior management.

7

Matsa & Miller also found that each ten percentage point increase in women

on boards increased the likelihood of having women among the top five

executives in the next year by 0.9 percentage points.

8

Tinsley and Purmal

more recently found that as female representation on boards increases,

females are much more likely to be appointed as CEOs of large, U.S.

companies.

9

Thus, there is strong evidence of what Matsa and Miller term

“gender spillover” from the board to the executive suite.

10

The question of where diversity initiatives will have the most impact

depends on where true corporate power resides. Directors are often blamed

in the wake of corporate scandals and failings—usually for not doing enough

to detect or prevent corporate misdoings.

11

Thus, it can be argued that

4. D

HIR

, supra note 2, at 31.

5. Fanto et al., supra note 3, at 909. For a discussion of how effective, or ineffective, these

signals might be, see Lissa Lamkin Broome & Kimberly D. Krawiec, Signaling Through Board

Diversity: Is Anyone Listening, 77 U. C

IN

. L. R

EV

. 431, 447 – 48 (2008).

6. D

AVID

B

ROWN ET AL

., W

OMEN ON

B

OARDS

: N

OT

J

UST THE

R

IGHT

T

HING

. . . B

UT THE

“B

RIGHT

” T

HING

8 (2002), https://utsc.utoronto.ca/~phanira/WebResearchMethods/women-

bod&fp-conference%20board.pdf. See also Carlson, supra note 3, at 384.

7. M

EGGIN

T

HWING

E

ASTMAN ET AL

., T

HE

T

IPPING

P

OINT

: W

OMEN ON

B

OARDS AND

F

INANCIAL

P

ERFORMANCE

9 – 10 (2016), https://www.msci.com/documents/10199/fd1f8228-

cc07-4789-acee-3f9ed97ee8bb.

8. David A. Matsa & Amalia R. Miller, Chipping Away at the Glass Ceiling: Gender Spillovers in

Corporate Leadership, 101 A

M

. E

CON

. R

EV

. 635, 638 (2011).

9. Catherine H. Tinsley & Kate Purmal, Research: Board Experience Is Helping More Women

Get CEO Jobs, H

ARV

. B

US

. R

EV

. (Jul. 29, 2019), https://hbr.org/2019/07/research-board-

experience-is-helping-more-women-get-ceo-jobs.

10. Matsa & Miller, supra note 8, at 638.

11. For example, see T

ORONTO

S

TOCK

E

XCHANGE

, W

HERE

W

ERE THE

D

IRECTORS

? (1994).

See Proposed National Policy 58-201: Effective Corporate Governance, 27 OSCB 8850

(proposed Oct. 29, 2004) (Can.), https://www.osc.gov.on.ca/documents/en/Securities-

Category5/rule_20041029_58-201_corp-gov-guidelines.pdf. A specific example is the case of

Bre-X, one of the most notorious Canadian corporate scandals in history. A small Alberta

mining company, which allegedly struck gold in Indonesia, saw its stock prices explode in the

mid-1990s. It turned out that the projections being publicly disclosed were a result of

tampering with core samples. Once these fraudulent disclosures were brought to light, Bre-X’s

stock plummeted. This scandal ended in criminal trials for the company’s directors and a great

deal of speculation as to how much they did or did not know and why they were not able to

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2020] MORALS OF THE WOMEN ON BOARDS STORY 237

boards (especially those of public companies) play a critical role in corporate

governance and the capital markets.

12

Questions of their composition are,

therefore, of the utmost importance in the realm of securities regulation and

corporate governance. However, some scholars view the board’s role as

superfluous. On this view, the board’s role is largely to “rubber stamp”

management’s decisions. They claim that executives hold the true power.

Directors, according to this perspective, do not have any impact on a

company’s performance and so the board’s composition makes little

difference either to individual corporate performance or to capital markets

more generally.

13

Since boards do very little, efforts aimed at diversifying

them make little sense. The counter-argument of course is that if boards do

so little, what is the disadvantage of requiring them to become more diverse?

Whatever the practical, effective role of boards, in seeking to improve

diversity within public corporations, the board is at least a logical place to

start for at least two reasons. First, formally the board is at the center of the

corporation’s power structure. Second, if it is accepted that change in the

boardroom leads to change throughout companies, then regulation of

diversity on boards will have important knock-on effects, regardless of any

general lack of board efficacy. Thus, the board “offers a contained and

sensible place to begin diversification initiatives.”

14

Typically, arguments in support of regulation aimed at increasing

women’s participation on public boards fall into two categories: the business

case and the fairness-based (or normative) case.

15

The business case is

essentially the idea that women bring some instrumental benefit to the

board, which leads to improvements in firm functioning or performance

overall. While politically attractive, the business case for justifying

prevent the massive fraud. For a full description, see Christopher C. Nicholls, The Bre-X Hoax:

A South East Asian Bubble, 32 C

ANADIAN

B

US

. L. J. 173 – 222 (1999). See also Fanto et al., supra

note 3, at 912; Akshaya Kamalnath, The Value of Board Gender Diversity vis-a-vis the Role of the

Board in the Modern Company, 33 C

OMPANY

& S

EC

. L.J. 90, 95 (2015), http://www.ssrn.com/

abstract=2608301. An American example of this is Enron, one of the largest corporate scandals

in U.S. history. The energy company was one of the largest, seemingly successful companies in

the United States in the late 1990s. However, Enron filed for bankruptcy in 2001, and it came

to light that behind the scenes the executives were misappropriating funds and self-dealing

while fraudulently reporting success to shareholders. For a detailed description, see John R.

Kroger, Enron, Fraud, and Securities Reform: An Enron Prosecutor’s Perspective, 76 U. C

OLO

. L.

R

EV

. 57, 138 (2005); Kristin N. Johnson, Banking on Diversity: Does Gender Diversity Improve

Financial Firms Risk Oversight, 70 SMU L. R

EV

. 327, 346 – 347 (2017); John C. Coffee Jr.,

Understanding Enron: “It’s About the Gatekeepers, Stupid,” 57 B

US

. L

AW

. 1403, 1419 (2002)

(wherein it is argued that Enron was actually a failure on the part of various gatekeepers, rather

than on the part of the board).

12. Angela Foster, A Quest to Increase Women in Corporate Board Leadership: Comparing the Law

in Norway and the U.S., 26 W

ASH

. I

NT

’

L

L. J. 381, 382 (2017).

13. Kimberly Krawiec et al., A Difficult Conversation: Corporate Directors on Race and Gender, 26

P

ACE

I

NT

’

L

L. R

EV

. 13, 14 (2014); D

HIR

, supra note 2, at 29; Kamalnath, supra note 11, at 99.

14. D

HIR

, supra note 2 at 29.

15. Darren Rosenblum, When Does Sex Diversity on Boards Benefit Firms, 20 U. P

A

. J. B

US

. L.

429, 438 – 39 (2018).

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