Women on Corporate Boards in Italy: The Role of Family Connections

• Author: Rossella Signoretti,Angela Ciavarella,Magda Bianco
• Date: 01 March 2015
• Published date: 01 March 2015
• DOI: http://doi.org/10.1111/corg.12097

Women on Corporate Boards in Italy: The Role

of Family Connections

Magda Bianco*, Angela Ciavarella, and Rossella Signoretti

ABSTRACT

Manuscript Type: Empirical

Research Question/Issue: This paper sets out to shed light on female representation on Italian corporate boards before the

introduction of gender quota legislation in 2012, as well as on the relevance of family connections. We investigate the

potential determinants of having boards with diverse representation and the correlation between female directorship and

family connections, with a focus on governance measures.

Research Findings: Using data on all directors of Italian publicly traded companies from 2008 to 2010, we identify two

different models. In the majority of gender-diverse boards, at least one woman has a family connection to the controlling

shareholder. Family-aff‌iliated women are more common in companies that are small, have a concentrated ownership, are in

the consumer sector, and have a larger board. Conversely, non-family-aff‌iliated women are more common on the boards of

companies that are widely held, have younger and more educated boards, have a higher proportion of independent

directors, and have a smaller number of interlocked directors. With reference to governance-related outcomes, the number

of board meetings appears to be negatively correlated to both the presence of family members and female directors.

Additionally, women show lower attendance than men at board meetings.

Theoretical/Academic Implications: The paper provides support for theories on the differences between the governance of

family-owned and non-family-owned companies.

Practitioner/Policy Implication: The study offers insights to policymakers implementing gender quota legislation. Sub-

stantial effort should be devoted to ensuring that board diversity is associated with actual independence of board members.

Keywords: Corporate Governance, Gender Diversity, Board of Directors, Family Firms

INTRODUCTION AND MAIN RESULTS

The Italian labor market is characterized by a very

limited participation of women. As the Global Gender

Gap Index shows, in terms of size of gender gap inequality

at every level, Italy is one of the lowest-ranking countries in

the EU.1The same situation pertained to corporate boards, at

least until 2011, when a new law mandated gender quotas

for Italian-listed companies and for state-owned enterprises.

Under the new regulation at least one-third (one-f‌ifth for the

f‌irst term) of board seatsmust be held by directors of the less

represented gender. This provision has been in force since

August 2012 and is subject to a three-board-terms sunset

clause.

Corporate governance of Italian listed companies is char-

acterized by a high ownership concentration with an

important role for family-controlled f‌irms, namely compa-

nies owned and often run by their founder or heirs

(Barontini & Bozzi, 2010; Bianchi & Bianco, 2008). House-

holds and private non-f‌inancial f‌irms hold more than 50

percent of the share capital of Italian listed companies,

while the same f‌igure is on average 30 percent in Europe

(Belcredi & Enriques, 2014). Nearly two-thirds of the

companies on the Italian market are family-controlled

(Belcredi, Bozzi, & Di Noia, 2013; Consob, 2013). Not only

is family ownership associated with peculiar agency prob-

lems, i.e. between majority and minority shareholders

rather than between executives and shareholders, but it

has also been found to affect the management of the

company. In particular, family f‌irms tend to adopt conser-

vative and risk-averse management policies when it comes

to acquisitions, restructuring, and investments (Anderson

& Reeb, 2003; Bianco, Golinelli, & Parigi, 2009; Caprio,

Croci, & Del Giudice, 2011; Faccio, Marchica, & Mura,

2011).

*Address for correspondence: MagdaBianco, Bank of Italy,Via Milano 64, 00184 Rome,

Italy. Tel: 0647924119; Fax: 06479294705; E-mail: magda.bianco@bancaditalia.it

129

Corporate Governance: An International Review,

© 2015 John Wiley & Sons Ltd

doi:10.1111/corg.12097

2015, 23(2): 129–144

In this paper, we focus on board diversity in Italian listed

companies in order to investigate its drivers and effects and

uncover possible differences between companies as a result

of their family ownership and control.

Globally speaking, women still hold very few corporate

seats, even if the numbers are growing almost everywhere.

There is increasing pressure to have female presence on

boards, due both to more attention on reducing the gender

gap and to analysis, primarily in corporate governance lit-

erature, suggesting that diverse boards are, under certain

circumstances, more effective.

Corporate boardstypically perform two roles: an advisory

role to management and a monitoring role. The importance

of diversity on corporate boards has been shown both in the

light of agency theory (monitoring role) and in the resource

dependence framework (advisory role). A heterogeneous

board is a stronger monitor of executive behavior, as diver-

sity brings different viewpoints to board oversight (Adams

& Funk, 2010; Anderson, Reeb, Upadhyay, & Zhao, 2011).

Specif‌ically, women, being generally excluded from the old

boys’ club, can enhance a board’s independence of thought

and monitoring functions (Adams & Ferreira, 2009; Rhode &

Packel, 2014).

In addition, the advisory role could be enhanced by a

greater female presence, as their different professional back-

grounds, perspectives, and problem-solving skills provide

top managers with valuable advice and counsel (Anderson

et al., 2011; Ferreira, 2010; Pfeffer & Salancik, 1978; Terjesen,

Sealy, & Singh, 2009). A number of recent papers have

measured the effects of female representation on com-

panies’ corporate governance. Greater female representation

appears to be associated with more attention to conf‌lict-of-

interest issues (Brown, Brown, & Anastasopoulos, 2002). It

has also been demonstrated that a higher percentage of

women on corporate boards leads to better attendance by

male directors, more board meetings, and increased pay-for-

performance (Adams & Ferreira, 2009); all of which suggests

that diverse boards are indeed stronger monitors. Another

contribution f‌inds that gender diversity increases a compa-

ny’s attention to stakeholders (Adams, Licht, & Sagiv, 2011).

Much less explored is the interaction between ownership

structure and diversity, and, specif‌ically, how diversity may

have a different impact depending on a company’s owner-

ship and control structure.

Much of the empirical research on gender diversity has

focused directly on its effects on various performance

measures, though with mixed evidence. While some

authors f‌ind a positive relationship between gender (and

ethnic) diversity and Tobin’s Q, or accounting measures of

performance (Carter, Simkins, & Simpson, 2003; Erhardt,

Werbel, & Shrader, 2003), others do not identify stati-

stically signif‌icant results. In addition, the impact of diver-

sity varies with company characteristics. According to

Anderson et al. (2011), board diversity (including gender)

positively affects the performance of more complex com-

panies but has detrimental effects in less complex organi-

zations. Adams and Ferreira (2009) f‌ind a negative

relationship between gender diversity and both Tobin’s Q

and return on assets. However, in companies with weaker

shareholder protection, gender diversity positively affects

performance while in well-governed companies additional

monitoring (i.e., that exerted by diverse boards) has a

negative impact.

The gender diversity issue is now also driving a policy

debate which is leading a number of European countries to

introduce some kind of compulsory quotas. Table 1 summa-

rizes the state of the art of gender diversity regulationacross

Europe. Quota regulation is generally justif‌ied on the basis

of the business and economic case for diversity on boards

(Adams & Kirchmaier, 2013; European Commission, 2013a).

Nonetheless, imposing constraints on board composition

may affect companyvalue and raise costs in terms of restrict-

ing the possibility of appointing the best available candidate

(Adams, Gray, & Nowland, 2010). Some evidence on Nor-

wegian companies suggests a negative impact on the value

of companies with all-male boards, while a positive market

reaction is found for those that have at least one female

director (Ahern & Dittmar, 2012). Another study of the Nor-

wegian market f‌inds that quotas increased labor costs and

employment levels while reducing short-term prof‌its (Matsa

& Miller, 2013).

Our aim is to shed some light on female representation on

Italian corporate boards by taking into account the peculiari-

ties of the Italian corporate control models. In particular, the

interaction between diversity and corporate ownership and

control is the aspect of Italian corporate boards (before the

introduction of the gender quota law) we seek to analyze.

First, we consider all directors of publicly-traded f‌irms in

the years 2008–2010 and investigate the main characteristics

of female directors, as well as potential determinants of

diverse boards. Specif‌ically, and unlike what has been pro-

posed for other countries, we take into account the charac-

teristics of both companies and female directors and their

aff‌iliation with the controlling shareholder.

Second, we look at the correlation between female

directorship and some governance measures, taking into

account the peculiarities of the Italian governance struc-

ture, i.e. the prevalence of family-controlled f‌irms. Female

directors in Italy were until recently extremely rare: at the

end of 2010 women held only 6.8 percent of total board

seats and the majority of listed companies had all-male

boards (Table 2).

We document a pervasive presence of women directors

linked through a family connection to the controlling share-

holder and describe the twofold nature of female represen-

tation in the Italian market. Family-aff‌iliated women are

more present in smaller companies, with concentrated own-

ership, which operatein the consumer sector and have larger

boards. Meanwhile, women without family connections are

more common on the boards of companies that are widely

held, have younger and more educated boards, have higher

proportions of independent directors, and have smaller

numbers of interlocking directors.

We also try to assess possible effects of women’s presence

on some governance-relatedoutcomes. The number of board

meetings appears to be negatively correlated with not only

the presence of a family member on the board, but also with

women (specif‌ically women with family connections). More-

over, female directors seem to perform worse than men in

terms of attendance. The negative relation between atten-

dance and gender is mainly due to the performance of

women in family f‌irms.

CORPORATE GOVERNANCE

© 2015 John Wiley & Sons Ltd

130

Volume 23 Number 2 arch 2015

M