The Faculty Lounge

Are Board Quotas Coming to Europe?

From today’s FT: EU pushes 40% quota for women on boards:

Europe’s listed companies will be forced to reserve at least 40 per cent of their non-executive director board seats for women by 2020 or face fines and other sanctions under a proposal being drafted by the European Commission.

The legislation, a copy of which was obtained by the Financial Times, is aimed at what EU officials believe is a severe gender imbalance across the bloc’s 27 member states. EU data shows that in January, women represented only 13.7 per cent of board positions in large listed companies.

Several EU countries (e.g. France, Italy, Spain, and the Netherlands, according to the article) have already adopted national gender quotas.  Other countries, such as Britain and Sweden, have strongly resisted the notion of gender quotas for boards. 

If passed, the legislation will mean significant change for the boardrooms of many European countries.  Above are figures from Catalyst on the percentage of board seats held by women in various EU countries as of 2012, with Norway, Sweden, and Finland (not surprisingly) far in the lead.  For most of Europe, however, a 40% target is a substantial increase over current numbers.

I haven’t blogged much about board diversity lately, not because I’ve become uninterested, but because I’ve been working on a book on the topic.  And like academic authors everywhere (maybe all authors everywhere?) we’re a bit behind, though not too much.  Anyway, as I start to get my head above water I hope to be back with more posts soon on the topic.

Gender Equality: From the Boardroom to the Electorate

Doug  Branson (Pitt) is the author of No Seat at the Table: How Corporate Governance and Law Keep Women Out of the Boardroom (NYU Press 2008).  At the MSU Symposium on "Gender and the Legal Profession," Professor Branson is speaking on "Diversity in Corporate Governance."  Here are a few highlights from his talk:

Corporations tend to choose the same women to serve on corporate boards, creating what he calls the "trophy director" problem.  The same women serve on four, five, six or more boards. Professor Branson says that the pool of potential board candidates needs to be larger.  64% of corporate directors do not come from "the system," meaning the corporate world itself.  It is more likely that female directors will have "side-stepped" in after serving in academia or the non-profit world.

Professor Branson offers these thoughts on why women have not progressed in the corporate world.  He says that women's communication style may be interpreted negatively by men, and that a 24/7 corporate culture penalizes women for being primary caregivers..

Adams, Gray, and Nowland on “Does Gender Matter in the Boardroom?”

Via the Harvard Law School Forum On Corporate Governance and Financial Regulation comes a post from Renée Adams, Professor of Finance at the University of New South Wales; Stephen Gray, Professor of Finance at the University of Queensland; and John Nowland of the Department of Accountancy at City University of Hong Kong on their newest paper, Does Gender Matter in the Boardroom? Evidence from the Market Reaction to Mandatory New Director Announcements, which uses unique data on director appointment announcements from Australia:

While the governance and disclosure environment in Australia is otherwise very similar to that in the US, announcements of director appointments prior to the proxy statement are voluntary in the US, whereas they are mandatory in Australia. Specifically, the Australian Securities Exchange (ASX) requires companies to notify it immediately of any new director appointments. This is useful for our purposes since it means our data should have fewer biases due to sample selection and timing. Furthermore, companies may not notify any other market participant of the appointments until they have received confirmation from the ASX that it has already released this information via its website. Thus, appointments of directors in our sample are unlikely to have been widely anticipated by market participants.

We find that the market reaction to female appointees is, on average, positive and significant. This suggests that the market does not perceive the appointment of female directors to be primarily motivated by tokenism. Moreover, the average reaction for female appointees is roughly 2 percent higher than for male appointees even after controlling for other appointee characteristics, such as independence, expertise and qualifications. This suggests that the gender of directors matters per se.

To examine why gender may be value-relevant, we investigate whether the valuation premium for female directors is related to firm, industry and hiring board characteristics. We find that the market reaction for female appointees is significantly higher than for male appointees in firms with boards that are not majority independent or are small. It is also higher in big firms and firms with high market-to-book ratios. This evidence is consistent with the argument in Adams and Ferreira (2009) that firms with more monitoring needs may benefit more from female director appointments. We also find that female appointees are more valuable than male appointees in the natural resource sector and in firms that have achieved recognition for programs to improve workplace conditions for women. This suggests that the appointment of female directors may improve conditions for stakeholders, in particular female employees, and that shareholders view these improvements as value-enhancing.

I’ll be back with much more to say about this paper when I have time.  But, the prior work on gender and boards by Adams and Ferreira, which I’ve blogged about before (see here and here), was a major (and controversial) contribution to the work on board diversity.  So, this paper is likely to be highly influential, and well worth reading.

(HT: Danny Sokol)

 

The Right Question For The Wrong Reasons: The WSJ On Why So Few Female Directors?

Today’s WSJ asks the question: why do so few women sit on US corporate boards?  According to Catalyst, women now hold about 16% of Fortune 500 board seats, as illustrated in the chart at right (source: Catalyst)  The article then goes on to the standard discussion of the Catalyst data on gender diversity and corporate profits in a manner that suggests that gender diversity improves profitability:

Major companies with three or more female directors achieved significantly better financial results than those with none between 2004 and 2008, according to a 2011 study by Catalyst, a nonprofit research group. In general, they outperformed companies with zero women on boards by 84% for return on sales, 60% for return on invested capital and 46% for return on equity.

I’ve repeatedly discussed the problems with this line of reasoning, as well as the numerous academic studies finding no impact or, in at least one case, a negative impact, of gender diversity on corporate performance.   See here and here, for example.  Previous board diversity posts are collected here.

Popular studies, such as Catalyst’s (discussed in the WSJ article quoted above), that consistently document the superior financial performance of firms with more female directors are frequently cited in the press and by industry and advocacy groups as proving “the business case” for board diversity.  In reality, we know very little about whether, how, why, and under what conditions board diversity impacts firm performance. (See here for a literature review)

Nonetheless, the WSJ inadvertently asks a good question.  With the notable exception of the Matsa and Miller study (previously discussed here), studies of board diversity tend to show no negative effect of female board representation, and there is clearly public pressure to diversify boards, both in the US and elsewhere.  

Moreover, in recent, ongoing research, Lissa Broome, John Conley, and I interview board directors and other corporate insiders about their views on board diversity. Nearly all of our respondents extol the virtues of board diversity in the abstract (though they often struggle for meaningful rationales and/or examples, a point about which we’ve written at length).  Which causes us to ask respondents the same question posed by the WSJ: if board diversity is supposedly so great for business, why isn’t there more of it? 

In our forthcoming book, The Danger of Difference: How Corporate Directors Talk About Diversity (University of Pennsylvania Press), we discuss our respondents’ answers when confronted with the disconnect between the nearly universal “board diversity is good for business” talk and the reality of limited change in boardroom demographics.  Some of their answers are also mentioned in the WSJ, including the preference for experienced CEOs and CFOs, most of whom are men, and women’s more limited professional networks.    

Like the WSJ, our respondents also discuss the talent pool question, but disagreed on the question of whether a limited pool of talented women explained the slow growth of women on boards.  Some respondents argued that there was still a shortage of qualified women willing and able to take on the job, others argued that this was no longer the case, and some argued that though there were talented women, many lacked public company experience and, instead, had found success as small business owners.  Even female accountants and lawyers, according to one (female) respondent may make early career choices that affect their later attractiveness as board candidates:

The difficulty for women getting on boards, particularly of sort of bigger boards is that most of the women, at least at [Company X], didn’t have public company experience and that could be for a few reasons. . . . I think also for the women, you know, a lot of women didn’t want to do the public company stuff if they had children because you get called, [inaudible 01:16:00] you get called at a moment’s notice. You don’t have the same control over your schedule so the number of women out there that they might sort of technically meet the financial expert but that really have the public company experience to really do a job or to not learn on the job is probably not as high.

I’m sure that I’ll be back with much more on this topic as we continue to work.  In the meantime, we’ve posted papers on the topic here, here, here, and here.

The Invisible Woman Versus The “First And Only”

Via my colleague, Kate Bartlett, I came across this short article by Amanda Gerut, Still Working to Cure ‘Invisible–Woman Syndrome,’ in Agenda.  The article opens: 

Women on boards aren’t considered token members anymore. But they still must work doubly hard to claim leadership positions and sometimes to prove their value to male board colleagues. 

The piece probably caught my attention because of some similarities to the narratives of tokenism that Lissa Broome, John Conley, and I discuss in Does Critical Mass Matter? Views From the Boardroom. Several of our female respondents reported that they worked harder and prepared more for board meetings than their male colleagues.

For many, this felt need to work harder did not just emerge in the boardroom, but reflected a lifetime pattern of behavior derived from being the first and only female or minority at many important career stages.  For example, in response to a question about whether she felt she was being held to a higher standard as a woman and therefore had to work harder, one respondent—a pioneering white female director as well as a member of her company’s management team—recounted her up-bringing and her education:

A: I think that I have a tendency to create that higher standard for myself, because having grown up in the timing that I did, I was al- ways the only woman doing whatever it was, and so, as a result, I always felt I had to work harder—example, being in an accounting class where I was the only woman, and back there that was—back then it was very common, and the professor saying that he had never given a woman an A. And, I mean, he announced that to the class. And you couldn’t do that today. So there was always that tendency that you had to work harder. 

My father was the type who didn’t feel that a woman should go to college, that a two-year school was all that a woman needed. And I had to—I proved him wrong. I paid for myself to go to college, whereas he totally paid for my brother and gave him a car. So I had to prove that I was going to do better than my brother. So I think you get that ingrained into you.

In a similar vein, an African American female director said that she “absolutely” prepared more for board meetings than other directors. Her explanation centered on being black, female, and middle class:

I was always told, and remember I grew up in the 60s when I was a teenager and went to college, that I have to go that extra mile, I have to extend myself beyond the benefit of the doubt ‘cause I’m not going to be extended the benefit of the doubt, so, if I’m asked to X, I have to do X plus Y.

A white female academic and former board member remarked that when she was the only woman on one board, “it did feel like I was continually representing something, or being a token. And that didn’t feel nearly as good as being part of a group of two or three” as she was on another board she later served on.  She also mused: 

I was just trying to figure out whether there are ways in which women are more or less likely to want to serve on boards as men; or whether minority people are more or less likely? Whether they feel that they will have too heavy a burden because they’ll be expected to be responsible for womanhood or minorityhood? I don’t think that’s true of most boards in fact. But whether, before you’ve ever served on one you might think you were going to have to? I don’t know if that’s a concern for some potential board members . . . if so, I would hope people would be able to lay those worries to rest.

Several women also reported that they understood in some sense that whether they did well as the first female board member might influence whether or when another woman would be invited to join the board. One white female board member told us that she was the first woman on a particular corporate board, joining an African American male who was already on that board. She acknowledged that by the time she left the board, there were four female board members, then quipped, “I guess I didn’t mess up too badly.” She also commented, however, on the pressure that this placed on her:

I never really had a bad experience as a token. In fact, they seemed to be particularly curious in what I did think. And that put some pressure on—if you were speaking, you didn’t want to just blurt out stupid things. But I never really felt intimidated about asking questions, either. 

And this leads to an important caveat to our respondent’s narratives about their potential token status:  although we heard stories of the stresses associated with being the first and only female or minority board member, this narrative is in tension with our respondents’ professed comfort with their first and only status and the benefits that they perceive accompany these stresses. Many of our respondents tend to view themselves as pathbreakers—often the first and only female or minority at many important career stages. They exhibit a certain pride in the notion that they are highly qualified corporate directors, accustomed to their “outsider” status, and need no additional reassurance or support from the presence of other members of their demographic group. All report an ability to function as effective directors, even when the sole female or minority in the boardroom.

One respondent, an African American female director, gave a vivid version of this account, made especially powerful by its framing as a retelling of a conversation that she had just had with her son: 

A: Well I’ll answer that question [how it felt to be the only racial minority on a particular board] this way because I just had that conversation with my son last night, yesterday, who’s going to take a new job. He’s a recent graduate. I told him that the first thing you have to do is recognize that you have the job because you have the skills to do it, and throughout my life I have never gone into any situation thinking that I was a minority. I know I’m a minority, but I don’t go into any situation with that as a conscious part of it. Any situation that I’m in is because I’m there as a person, and I’m there because I have something to contribute, I have some skill, I have some expertise, and so that is the mindset that I took to the [name of company] board. I’m here because I have something that they wanted and it’s regulatory expertise and that’s what I’m here to provide, and so I never let being a woman or a minority come to the forefront and I think when you do that, it can put you at a disadvantage because that’s what you focus on and so when you say how was it, I never dwelled on that. I was there because they asked me to be there for a particular reason and that was the value that I brought to the board so it was not an issue for me, and I don’t think that they viewed that as an issue either. One of the things that I know happens when boards actively seek other members who don’t look like them, they’re not white and they’re not male; they’re at a point in their life that they recognize that they have to do things differently from a business standpoint. 

The paper contains numerous additional quotes highlighting this tension between our respondents’ recognition of the stresses associated with being the first and only female or minority in the boardroom and their apparent embrace of their “first and only” pathbreaker status. 

Image Source

 

Critical Mass and The Decline of African-American Men on Public Company Boards

As I mentioned a few days ago, the Alliance for Board Diversity released its 2010 board diversity census last week and the news is not good for African-American men.  Though the new census is notable for a few reasons, including the demographic changes detailed below, an important development is the extension of the census to the Fortune 500 for the first time.  In prior years, the census covered only the Fortune 100.

A few quick and dirty numbers from the Fortune 100:

- The number of board seats remained relatively flat between 2004 and 2010, with only 16 seats added.

- White men gained 32 board seats, while African-American men lost 42 seats.

-Women gained 16 board seats, though African-American women lost a seat

Figure 5 below shows more demographic detail on seats gained and lost between 2004 and 2010.  

In 2010, for the first time, ABD expanded its board diversity research to include Fortune 500 companies.  As would be expected, the Fortune 500 is less diverse than the Fortune 100.

The declining numbers of African-American board members may be particularly relevant to proponents of the benefits of a “critical mass” in the boardroom – that is, the theory that women and racial or ethnic minorities are unlikely to have an impact in the boardroom until they grow from a few tokens into a considerable minority of the board.    As we discuss in Does Critical Mass Matter? Views From The Boardroom, though both our female and minority respondents provide insight on their “first and only” status, or about tokenisim more specifically, very few of our texts address the issue of a critical mass of minority (as opposed to female) directors.  This almost certainly reflects the simple fact that relatively few public companies have three or more minority directors (the ABD report lists those in the Fortune 500 that do).  And even among those companies, minority directors are generally from different demographic groups, such as African-American, Asian, or Hispanic, rather than from a single demographic group.  For example, according to the latest ABD numbers, only a handful of corporations in the Fortune 500 have three or more board members who self-identify as being from the same racial minority group.  (For more on the origins of the magic number of three in critical mass theory see here.)

As to the question of whether critical mass matters in our respondents’ accounts, the short answer is that our texts provide some support for gender-based accounts of critical mass theory, but of a more limited sort than that reported in other recent qualitative studies of critical mass in the boardroom. Some female respondents expressed the view, consistent with Rosabeth Kanter’s original articulation of critical mass theory, that having more women on the board increased their comfort level.  We also heard stories of the stresses associated with being the first and only female or minority board member, including the pressure to work harder; automatic visibility, and the heightened scrutiny that comes with it; being viewed as the sole representative of an essentialized conception of female or minority interests; and anxiety about making it harder for future female or minority candidates.

Yet, this narrative is in tension with our respondents’ professed comfort with their “first and only” status and the benefits that they perceive accompany these stresses.  Many of our respondents tend to view themselves as path breakers – often the first and only female or minority at many important career stages.  They exhibit a certain pride in the notion that they are highly qualified corporate directors, accustomed to their “outsider” status, and need no additional reassurance or support from the presence of other members of their demographic group. All report an ability to function as effective directors, even when the sole female or minority in the boardroom.  Moreover, with the possible exception of employee relations (which we discuss at length here and I have blogged about here and here) our interviews do not support theories that a critical mass of female directors will produce different, or distinctly feminine, outcomes. 

I’m sure that I’ll be back with more on this topic in the future.  Board diversity seems a particularly newsworthy topic these days, though much of the news and commentary (especially news and commentary out of Europe) involves gender, rather than racial, diversity. 

Whiter Boards And Dangerous Categories At The Huffington Post

Over at the Huffington Post, in Corporate Boards Getting Whiter While America Is Not, Janell Ross discusses the new Alliance for Board Diversity 2010 census, which shows that white men have increased their share of board seats in the Fortune 100 since 2004, while black men's share has decreased.  I’ll be back with much more on the new census later. 

But Ross also discusses the recent research that Lissa Broome, John Conley, and I have been doing on corporate board diversity, which I’ve discussed here, here, and here.  Says Ross: 

Another problem may be one that, for years, passed as the solution to all types of discrimination: ignore or at least avoid talking about difference.

When [Lissa L.] Broome and her research partners interviewed corporate board members around the country about the issue of diversity, many of the people interviewed expressed confidence that board diversity is valuable but were unable to articulate specific ways in which it affected decision making or shaped outcomes.

“I think part of the problem is that people are very uncomfortable talking about race and gender,” said Broome, who is white. “Talking about that is not politically correct or may not feel that way for a lot of these directors.”

As we say in Dangerous Categories: Narratives of Corporate Board Diversity:

This expressed reluctance to come to specific terms with general claims about the value of director diversity inspired our title phrase: dangerous categories. That is, while “diversity” evokes universal acclaim in the abstract, our respondents’ narratives demonstrate that it is an elusive and even dangerous subject to talk about concretely. The fundamental reason for this awkwardness is readily apparent: to argue that diversity matters in some specific way is to argue that diversity is a proxy for difference. Yet to suggest group-based difference is to open the door to both stereotyping and invidious comparison. Everyone in the debate has a vested interest in not walking through that door. Those who are not members of the excluded groups do not want to be heard to say that “they” are all alike, whereas those who are members do not want to point to fundamental differences that might be translated as “less qualified” or “needing assistance.” So we are left with narratives that simultaneously extol difference and express embarrassment with it.

I’ll be back with more detail and analysis on the Alliance for Board Diversity census shortly.  In the meantime, I know what you’re thinking: “Gee, Kim, what else have you written on this topic and where can I get an immediate copy?”  Your wish is my command.  Our forthcoming and existing works on board diversity include: 

Narratives of Diversity in the Corporate Boardroom: What Corporate Insiders Say About Why Diversity Matters

Does Critical Mass Matter? Views from the Board Room

Signaling Through Board Diversity: Is Anyone Listening?

Dangerous Categories: Narratives of Corporate Board Diversity

Corporate Board Diversity Symposium Volume Is Here!

I blogged a few times last year (here and here) about a great symposium on corporate board diversity co-sponsored last year by Duke and UNC law schools and Duke Energy.  The volume is now out in the North Carolina Law Review (exactly on schedule, good job UNC editors!) and contains some really interesting papers that are substantial contributions, not only to the research on corporate board diversity, but to research on diversity more generally.  Below is the program, with links to all the papers.  Many thanks to all the authors, commenters, attendees, and editors. 

 

Dangerous Categories: Narratives of Corporate Board Diversity

Lissa L. Broome, John M. Conley, and Kimberly D. Krawiec

In this article, we report the results of a series of interviews with corporate directors about racial, ethnic, and gender diversity on corporate boards. On the one hand, our respondents were clear and nearly uniform in their statements that board diversity was an important goal worth pursuing. Yet when asked to provide examples or... »

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Corporate Board Gender Diversity and Stock Performance: The Competence Gap or Institutional Investor Bias? [Commentary]

Frank Dobbin & Jiwook Jung

Women now make up a sixth of corporate board members in the Fortune 500. Some scholars suggest that women board members boost financial performance, and thus stock price, by making boards more effective.  Indeed, early studies showed a correlation between women on boards and both profits and stock price.  But more rigorous studies have suggested that... »

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Commentary: Puzzles About Corporate Boards and Board Diversity [Commentary]

Donald C. Langevoort

Those who seek greater gender or ethnic diversity on corporate boards of directors work under the self-imposed burden to show that board-level diversity adds value to the firm in some tangible way. In a perfect world, board diversity follows naturally from the fair distribution of talent and skill between the genders and among... »

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Justifying Board Diversity

James A. Fanto, Lawrence M. Solan, and John M. Darley

In this Article, we point out that advocates for board diversity in public companies feel pressure to justify it in terms of its contribution to shareholder value. This pressure is not surprising, insofar as the dominant social identity of boards, which itself is partly a creation of the discipline of finance, views shareholder value... »

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The Mismatch Critique: Comment on Fanto, Solan, & Darley [Commentary]

Jerry Kang

James Fanto, Lawrence Solan, and John Darley build their paper, Justifying Board Diversity, on the basis of two essential claims—one legal, the other empirical. The legal claim is that existing law does not much constrain how corporate boards address the (lack of) diversity of their membership. The empirical claim is that board... »

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Board Diversity Revisited: New Rationale, Same Old Story?

Lisa M. Fairfax

Recently, board diversity advocates have relied on market- or economic-based rationales to convince corporate America to increase the number of women and people of color in the boardroom, in lieu of moral or social justifications. This shift away from moral or social justifications has been deliberate, and it stems from a belief that corporate... »

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Diversity on Corporate Boards—Limits of the Business Case and the Connection Between Supporting Rationales and the Appropriate Response of the Law [Commentary]

Thomas Lee Hazen

Some observers suggest that diversity on corporate boards of directors will lead to new perspectives and hence better decision-making by the board. It would seem to follow that improved decision-making will lead to better corporate performance and thus presents a “business case” for increasing diversity on corporate boards. This essay explores the limits of... »

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The Diversity Double Standard

Sung Hui Kim

In Grutter and Gratz (2003), the twin cases that challenged the University of Michigan’s affirmative action programs, corporate America praised educational diversity as a compelling interest. But as is well known, they did so not on social justice grounds but on the empirical claim that “diversity is good for business.” In particular, education in... »

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Different Strokes for Different Folks: A Different Standard is not Inherently a Double Standard [Commentary]

James E. Coleman, Jr.

During the Senate’s closed confirmation hearings on President Dwight D. Eisenhower’s nomination of George E. Wilson, President of General Motors, to be Secretary of Defense, a senator asked Wilson if he would be able to make decisions as Secretary of Defense that were adverse to General Motors’ interest. Wilson replied that he would,... »

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Showcasing Diversity

Patrick S. Shin & Mitu Gulati

Diversity initiatives are commonplace in today’s corporate America. Large and successful firms frequently tout their commitments to diversity, sometimes appointing women and racial minorities to highly visible posts, including seats on their boards of directors. Why would a profit-minded firm engage in such behavior? One frequently voiced explanation is that by creating such diversity,... »

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Showcasing: The Positive Spin [Commentary]

Katharine T. Bartlett

What do companies signal when they showcase female and minority members of their corporate boards? Not necessarily more, say Patrick Shin and Mitu Gulati, than that they understand that diversity is a socially significant issue, and that they can attract members of the showcased individual’s minority group, against whom they are then probably disinclined... »

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Diversity and Corporate Performance: A Review of the Psychological Literature

Jennifer K. Brooke & Tom R. Tyler

This Review examines two approaches to diversity management in the context of procedural justice theory: 1) maximizing the benefit of diversity in the workplace and 2) minimizing any potential harm. With regard to the former, this Review argues that the application of procedural justice theory will create conditions under which employees of all backgrounds... »

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The Milieu of the Boardroom and the Precinct of Employment [Commentary]

Deborah A. DeMott

This Commentary explores differences between employer-employee relationships and service on a board of directors. Against this backdrop, this Commentary argues that the research findings surveyed by Brooke and Tyler, although specific to the employment context, may be salient in assessing the impact of diversity among members of a board of directors. »

 

The Mutual Fund Directors Forum Highlights Our Latest Paper On Critical Mass

Board Diversity - How Important is “Critical Mass?”

Professors at UNC Chapel Hill and Duke University Law School recently published a paper describing and analyzing the results of data collected form corporate directors on whether an [sic] how board diversity matters.  The paper and survey go further than previous studies on the topic to explore whether "critical mass" in board diversity, as opposed to "token" diversity, produces different boardroom decisions or outcomes.  The professors conclude based on their surveys and interviews that the data collected do not reflect significantly different boardroom outcomes resulting from a critical mass of diverse directors.

According to the paper's abstract: 

In this article, we report and analyze the results of forty-six wide-ranging interviews with corporate directors and other relevant insiders on the general topic of whether and how the racial, ethnic, and gender composition of corporate boards matters. In particular, we explore their views on the concept of “critical mass” – that is, the theory that women and racial or ethnic minorities are unlikely to have an impact in the boardroom until they grow from a few tokens into a considerable minority of the board. In contrast to other recent qualitative research on corporate boards, we find more limited support among our respondents for critical mass theory. Though some female respondents expressed the view, consistent with critical mass theory, that having more women on the board increased their comfort level and eased some of the stresses associated with being the first and only female, this narrative is in tension with our respondents’ apparent embrace of their first and only status. Moreover, with the possible exception of employee relations, our interviews largely fail to support the theory that a critical mass of female directors will produce different, and distinctly feminine, boardroom outcomes.

The study and paper were conducted and authored by Lissa L. Broome, University of North Carolina (UNC) at Chapel Hill - School of Law; John M. Conley, University of North Carolina (UNC) at Chapel Hill - School of Law; and Kimberly D. Krawiec, Duke University - School of Law.  The full text of the paper may be obtained at:  http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1781064

I’ve been too busy lately to really have a chance to talk about this newest paper much, but hopefully I’ll be able to get back here in the next week with some more thoughts on critical mass.

 

Women At Top Lift Shares, Study Shows. Or Not.

In an article yesterday headlined, “Women At Top Lift Shares, Study Shows,” the FT discussed a new report on corporate boards published by the British law firm Eversheds.  Although copies of the report do not appear to be publicly available, the firm’s website reports that a free copy can be obtained by emailing clientsrevolution@eversheds.com.  I’d be surprised if the study actually shows that women directors improve corporate performance, as opposed to merely confirming the by now well-known correlation between board diversity and stock performance. 

Says the firm’s website:

The report also reveals that those companies who had more female directors performed better during the financial crisis – this was particularly so in the UK and in the banking sector. However, when interviewed, only 55% of directors thought that diversity for its own sake was beneficial for board and company performance and only half that number was directly in favour of taking positive action to appoint more women onto boards.

As I’ve discussed at length here before, the claim that board diversity improves firm performance is a relatively common one, particularly post-crisis.  This could be the case, of course, though the majority of empirical studies on point conclude that gender diversity on boards has no effect or a negative effect.  (See here for a literature review of empirical studies on board diversity). 

Instead, it is just as likely that more successful firms have greater resources to dedicate to the pursuit of board diversity; or are under greater public scrutiny and pressure to diversify their boards; or that female and minority directors are scarce commodities who can choose to serve only on the boards of more successful firms.  Or, as mentioned by several of our respondents, modern, forward looking (and thus well-managed and successful) companies could view board diversity as simply one of many “good governance” mechanisms to be followed by companies that are (or want to be perceived as) modern, forward-looking, and well-managed.   As stated by one of our (white, male) respondents: 

To me, that’s why some boards go for diversity in part, they want to look like they’re the majors, I’m sure they want to look like world businesses, they want to look like businesses that understand the galaxy. Well, I’m serious. And so, yeah, I think a piece of it is symbolic speech. That used to make me ill when people would say, “Well you want to look like your community.” But in truth, you do. Or the community you want to be. Better yet than that, you want to look like the community you aspire to be.

Interestingly, though one can think of several theories to support the notion that diverse boards perform better than homogenous ones in times of crisis (for example, women’s risk aversion, the avoidance of group-think, etc.), our respondents make the opposite point.  Many suggest that diversity brings benefits during good times, such as more creative thinking or a focus on employee welfare (though, as we discuss at length here, these assertions are not, on the whole, well-supported or clearly articulated).  But the feeling appears to be that diversity, and its attendant “creative vibes,” is irrelevant to firms in crisis, who just need to stay alive.   Said one of our (Hispanic, female) respondents: 

If you could for a moment imagine yourself in a fast flowing river drowning looking for a lifeboat, you wouldn’t care what color it was and you wouldn’t care who was in the lifeboat. All you need is a lifeboat.

Some respondents attributed the lack of board diversity at start-ups to a similar need to focus on the basics.  Said one (white, female) respondent:

I have been on boards of far more entrepreneurial companies, like [company names omitted], where that kind of concern [i.e. board diversity] is not raised because the concerns are so different. They’re trying to stay alive, basically. It’s businesses, so diversity is down the line someplace in terms of a value, not that anybody would be precluded, but it just doesn’t come up in the same way it does. 

And for those of you who have been breathlessly waiting for the next installment of this project, it’s your lucky day.  We just posted a new paper to SSRN: Does Critical Mass Matter: Views From the Board Room.  Here is the abstract:

In this article, we report and analyze the results of forty-six wide-ranging interviews with corporate directors and other relevant insiders on the general topic of whether and how the racial, ethnic, and gender composition of corporate boards matters. In particular, we explore their views on the concept of “critical mass” – that is, the theory that women and racial or ethnic minorities are unlikely to have an impact in the boardroom until they grow from a few tokens into a considerable minority of the board.

In contrast to other recent qualitative research on corporate boards, we find more limited support among our respondents for critical mass theory. Though some female respondents expressed the view, consistent with critical mass theory, that having more women on the board increased their comfort level and eased some of the stresses associated with being the first and only female, this narrative is in tension with our respondents’ apparent embrace of their first and only status. Moreover, with the possible exception of employee relations, our interviews largely fail to support the theory that a critical mass of female directors will produce different, and distinctly feminine, boardroom outcomes.

I will, of course, be back with much more on this topic in the future.

Corporate Boards As Cheap Talk: The U.K. Quota Debate

The U.K. government inquiry regarding women on corporate boards has reportedly rejected the imposition of statutory quotas, but will recommend that 20% of FTSE 350 directors be women by 2013, and 25% by 2015. Lord Davies, former trade minister and author of the report, has warned that board gender quotas may be reconsidered if companies do not voluntarily achieve sufficient progress towards these goals.

Steve Bainbridge, always faster at the keyboard than me, has a post about the controversy here.  Lucy Kellaway, FT columnist and board member at a FTSE 100 company, has a column in Sunday’s FT responding to the Davies report, and arguing that:

For me personally, this hunger for women directors is a thoroughly good thing . . . But from a business point of view, the obsession with women on boards seems all wrong.

Her column generated several letters to the editor today (here and here).  Kellaway’s full piece is very thoughtful, and echoes some of the cautionary themes that Lissa Broome, John Conley and I highlight in our work on board diversity (see here, here, and here).  Says Kellaway:

A while ago I asked the men who were on our board in its earlier, all male days, how much difference it made having two women around. They hummed and hawed for a bit and said that we approached things in a slightly different way. And that we were a good example to the women lower down in the company.

I’m not sure about either point. 

Both answers are ones we heard from our respondents.  For example, several respondents invoked the allegedly different sensibilities, reasoning processes, and interpersonal skills of men and women. Said one white, male respondent: 

Well I think it brings an entirely new perspective to the thinking of a board. It creates a very positive dynamic and [laughs] you’re right; I’ve sat on boards where all of us were silver haired males and the dynamic is different from when you have minorities and women on boards so I guess I just feel that there’s more creative vibes going on [laughs] if you’re on a board where there’s different thinking and different channels of thinking.

But several subjects also suggested that the value of difference derived not so much from gender and race as from specific professional skills or experience. Their narratives extol the abstract value of race or gender diversity. But the ultimate focus turns out to be a particular skill set or background experience, not necessarily connected to the director’s race or gender, that proved valuable: for example, organizational skill gained through high-level military service (an African-American male), or engineering (a white female), or regulatory expertise (an African-American female).

Kellaway makes a similar point:

It is, of course, vital that board members don’t all jump to identical conclusions about everything. But in my experience, gender is less important than profession: a male journalist and a male accountant probably take more sharply opposing positions on business issues than do, say, a male and a female accountant.

Like Kellaway’s male colleagues, many of our respondents (both male and female, white and non-white) also mention the value of a diverse board to female and minority employees. In fact, this is arguably one of the most consistent narratives across our interview texts. Some respondents suggested direct benefits, which we discuss at length here.  Others proposed indirect benefits to employees stemming from a diverse board: that corporate board diversity sends an important signal to a company’s employees about the value it places on diversity, and about the availability of role models and mentors at the top of the corporate hierarchy.

For example, an experienced white female board member emphasized that the presence of female board members had been important to her when she was an employee, saying, “I think this is more recognition that, you know, people, that women or minorities are competent, capable and can be in leadership positions, to give you a sense of pride, and a little bit of comfort.”  Another white female respondent told us that having women on the board mattered to the senior women management at the company, by providing them with “a comfort level”:

[T]here were senior women in the company and they made a point of, not in the middle of the meeting, but part of board service is spending time, sometimes through dinners or other events that would be arranged with senior people, of speaking to me and I assume they did to [the other female director] as well about how much it meant to them to have a woman sitting there. 

But Kellaway hits on a tension in the role model and signaling arguments for board diversity that is the subject of our first paper on this topic: is it just “cheap talk?” Says Kellaway:

Not only is the fuss over women non-execs beside the point, it may end up being counter-productive. Many of the news stories last week named and shamed the companies with no women on their boards. Now all these companies need do to stop such stories is ship in a couple of vaguely plausible female non-execs – which is an awful lot easier than changing anything important – such as how they treat their women managers.

Kellaway makes a good point here: we must be able to assure ourselves that “talk,” through the demographic composition of the board, is sufficiently costly to deter mimics who seek to reap the signaling benefits of board diversity without incurring the costs of altered corporate behavior.  Board diversity has been the focus of reform in many countries in recent years.  But perhaps it is worth asking whether reform comes easier on corporate boards than within corporate organizations themselves because it is a low-cost means of deflecting criticism.  (Along these same lines, see our recent exchanges with Don Langevoort and Larry Ribstein on the possible triviality of much board life.) 

Prior posts on board diversity are now collected here.

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Pretty and Caring Boards . . . Now Back To That Whole “Europe Is Bankrupt” Problem

Amid a debate in Germany over board gender quotas for women, Josef Ackermann, head of Germany's largest bank, Deutsche Bank, which has no women on its executive board, has generated controversy through statements that appointing women to its executive board would make it "prettier and more colourful."   AP story here. 

The story interests me because of the research I’ve been doing lately on board diversity, which includes interviews with corporate directors about what value, if any, they believe race and gender diversity brings to the boardroom.  In our most recent piece on this, Dangerous Categories: Narratives of Corporate Board Diversity  (well, the most recent that has been posted – we also have a forthcoming piece on Critical Mass that is not yet ready for prime time), we explore the difficulty our respondents appear to face in making the business case for board diversity without veering into the dangerous territory of race and gender stereotyping.

Although none of our respondents are so impolitic as to suggest that women make the boardroom prettier, many suggest that they make it warmer, more caring, and friendlier to “the little people.” Such generalizations, as we discuss, present difficulties of their own, as many of our respondents seem to recognize.

But the funniest thing I read on this story is not the retort from female German leaders (though those are funny and include such gems as telling Ackermann he should visit a flower meadow), but the comments to the story on the Telegraph.  Before degenerating into sexism, sniping, and other silliness, as blog comment sections are wont to do, several funny comments were posted, including:

- Europe is not a serious place to do business.

-What's the fuss about? We ended up with Tony Blair as Prime Minister for 10 years because women thought he was attractive.

-I think the bank has more important things to worry about than a gender quota. Perhaps people should turn their focus back to the whole 'Europe's going bankrupt issue'

(HT: Tom Lin)

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Related Posts:

Dangerous Categories and “Trivial” Boards: The Wrap-Up

Dangerous Categories II (Wow, Men Are Still From Mars and Women From Venus?)

Dangerous Categories: Diversity and Stereotypes in the Boardroom

Duke-UNC-Duke Energy Board Diversity Conference Today

Quotas, Board Diversity, and Corporate Performance

Vancouver Rocks! (Part II)

“Meddling Women” In The Boardroom

Substantial Evidence or Substantial Uncertainty? If Gender Diversity on Boards Clearly Adds Value, Then Why Are There So Few Women on Boards?

Sotomayor, Diversity, And Group Dynamics: Why Do We Care? What Do We Know?

Do The Right Thing – So Long As It’s Free 

Money Is Diversity, Or Diversity Is Money?  

What Corporate Insiders Say About Why Diversity Matters

Wrapping It Up: The Struggle To Explain Why Difference Makes a Difference

 

Is Women’s “Ethic of Care” Value-Decreasing?

In a new paper posted to SSRN, David A. Matsa and Amalia R. Miller examine the impact of the Norwegian quota (roughly 40% of board seats must be held by women, see here and here for prior posts) on the management style of affected firms by comparing them to other Scandinavian companies, public and private, that were unaffected by the rule. Matsa and Miller, consistent with prior research, find that the quota is associated with a relative decline in corporate profitability. (HT: Holger Spamann)

 (We review the empirical literature in our most recent paper, for those wanting more information on these various studies.)

What is new about the Matsa and Miller study, however, is that they decompose the change in profits to determine why quota firms lost value.  They conclude:

The results suggest that the decrease in profits can be explained entirely by increased labor costs. On average, labor costs increased by 21 percent, relative to firms that were unaffected by the quota. . . . Among affected firms, average employment increased even more than labor costs. This pattern is consistent with women on corporate boards directing their firms to hire or retain additional rank and file workers. Because low-wage workers are particularly vulnerable to unemployment risk, this pattern may reflect a greater concern on the part of female board members for the well-being of workers at the lower end of the wage distribution.

In a forthcoming paper, Lissa Broome, John Conley, and I discuss the results of a series of interviews with corporate directors about the value, if any, of corporate board diversity.  As I’ve discussed in several prior posts (here, here, and here), the interviews reveal a tension: while “diversity” evokes universal acclaim in the abstract, our respondents’ narratives demonstrate that it is an elusive and even dangerous subject to talk about concretely. 

Importantly for purposes of the Matsa & Miller paper, however, many of our respondents generalized about women and the ethic of care in ways that were strongly reminiscent of Carol Gilligan’s feminist classic, In A Different Voice.  Nearly all of these examples, which we excerpt in detail in the article, relate directly or indirectly to employee, community, or customer relations.  Perhaps most meaningfully, female and minority board members were credited with positive contributions in improving employee relations, and in causing the corporation to focus more deliberately on the diversity of its workforce as it considered hiring, retention, promotion, and succession issues. 

For example, a white female director stated that women “tend to be more sensitive to the people issues within the company” and “tend to deal with the softer side and understand the workers more” than their male counterparts.  Her specific examples included thinking through communicating “various things within the organization when you’re dealing with something like selling the company.”  The company wasn’t “putting enough emphasis on that piece of it [the people issues].  And so I think I was able to make an impact from that standpoint.”

A Hispanic female board member also mentioned being sensitive to employee concerns because as a woman:

You feel it. You’ve seen it. You’ve experienced it. You’re sensitive to it. You understand it and when you make a decision whatever that decision is whether it’s about an acquisition, whether it’s about anything it just makes you more sensitive to everyone that’s involved, everyone that’s involved; their health care, their retirement, all their benefits. If one of our employees becomes very ill, making sure that their family is going to be taken care of; that you have an appreciation for the contribution that they’ve made to the company.

This same board member talked about recognizing that she has a great appreciation “for the worker bees in a company”:  “I feel like part of my role is to represent the worker bees, not to lose sight of those people and to make sure that they’re remembered and not forgotten because that’s where the rubber meets the road” and a business cannot succeed without them.

For reasons we elaborate in the paper, an attention to employee relations (particularly attention to equal opportunity practices in hiring, retention, and promotion) could suffice as a business justification for the pursuit of board diversity, either from a risk management or from a profitability standpoint. But, of course, as Matsa and Miller find, too much “empathy” with employees could also reduce shareholder value; to the extent it results in inefficient labor policies.  

In the end, like so much of the dialogue associated with board diversity, women’s purported greater ethic of care appears to be a double-edged sword.  As we note in the paper, difference arguments of this sort can be dangerous enough, by opening the door to both stereotyping and invidious comparison.  

Now, Matsa and Miller point to another potential drawback.  Our respondents raised the “ethic of care” trait as an argument in favor of the business case for board diversity – positive relations with employees will provide bottom-line improvements.  And, of course, they may.  But as Matsa and Miller find, too much “empathy” could also decrease firm value, especially in tough economic times. 

Quotas, Testosterone, and Board Dynamics (and Synchronized Swimming)

In an interview at the Women at the Top conference in London, French Finance Minister Christine Lagarde spoke with the FT on video about her conference address (http://video.ft.com/v/677520169001/Lagarde-speaks-out-on-female-quotas). In the video (and in her conference speech), Lagarde comes out in favor of female quotas both in business and in political bodies.  Of particular interest to me is her statement about the need for quotas to enhance corporate board diversity. 

The conversation centers around the now-familiar contention that male testosterone is part of the reason for recent financial crises around the world.  Says Lagarde:

If you have too much testosterone spirit around, there is that atmosphere of trying to compete all the time, trying to prove yourself to the detriment of this sort of common interest that should bring us together. And I believe, either because they’ve been in the minority for such a long time or because there are some feminine values – and I have questions myself about it – but certainly those skills can be very helpful in softening, in tempering, in bringing a bit of sense when there is too much male competition around.

Lagarde goes on to say that when she was younger she was against quotas, but she now favors them, both on corporate boards and in the political arena, and discusses pending French legislation on female board representation. As an aside, I seem to be the last to realize that Lagarde was a Baker & McKenzie lawyer, and the first female president of the firm’s executive committee, an experience she discusses briefly in the interview.  She was also a member of the French national synchronized swimming team.  (I go back and forth as to which of these feats is the most impressive in a Finance Minister). 

I’ve lately been discussing a forthcoming paper, Dangerous Categories: Narratives of Corporate Board Diversity (with Lissa Broome and John Conley), and, in particular, our respondents’ claims about the unique “feminine values” that women bring to the boardroom.  The bulk of our respondents’ narratives on this front relate to women’s greater ethic of care and sensitivity to employees, consumers, and the community, rather than to female risk aversion.  

A few of our narratives touch on the risk reduction point, but normally the explanation given is that of reducing “group-think” and the risky behavior of bodies whose members all think alike, rather than the unique risk-avoidance tendencies of women as a group.  Said one respondent: 

regardless of what the statistical studies say, I think people know especially on the risk side that whenever you get anything involving sort of group think, everybody in the room having the same background, group of experiences and so forth that that is an absolute breeding ground for risk, for problems to occur.  . . . 

I think by and large the folks that believe that diversity is important put a very high value on it for that exact reason that they think this creates greater, frankly, psychological independence in the boardroom.  It creates more viewpoints in the board room and that leads to better decision making I think and I think that’s a change from certainly fifteen or twenty years ago when I think it was purely viewed in terms of sort of social equity issues about increasing participation by women and minority group members on boards of directors and I don’t see that as much today. 

I think the arguments in favor of board diversity are much more sophisticated today and that we’re really talking about trying to help boards to provide stronger oversight.  We’re trying to help boards to eliminate the possibility of groupthink, I think. 

The difference between Lagarde’s statement and our respondents’ theories regarding the impact of board diversity on corporate risk seeking is a subtle, but significant, one.  Whereas Lagarde, supported by some research on risk-seeking and testosterone levels in investor behavior, takes the position that women in the boardroom will decrease risky corporate behavior due to unique feminine risk-avoidance attributes, our respondents are making a point about risk-avoidance in heterorgenous groups more generally.

This is not to say that our respondents reject the notion of unique feminine qualities in the boardroom.  As I noted is a prior series of posts (see here, here, and here), many of our respondents generalized about women and the ethic of care in ways that were strongly reminiscent of Carol Gilligan’s feminist classic, In A Different Voice.  Yet those generalizations centered on women’s superior empathy and compassion, not on their risk-aversion. 

Either way, the potential dangerousness of such difference-based arguments for gender diversity is clear: to suggest demographic group-based difference of this sort is to open the door to both stereotyping and invidious comparison.  This tension is evident in our respondents’ accounts, which simultaneously extol difference and express embarrassment with it (and, in my opinion, is evident even in Lagarde’s brief account).

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Dangerous Categories and “Trivial” Boards: The Wrap-Up

In my last two posts  -- Dangerous Categories: Diversity and Stereotypes in the Boardroom and Dangerous Categories II (Wow, Men Are Still From Mars and Women From Venus?) -- I discussed a forthcoming paper with Lissa Broome and John Conley on corporate board diversity. As I noted, all of our interview subjects (with one partial exception) agree with the abstract proposition that board diversity is a good thing. On the more specific question of why it is good, there is broad agreement—a master narrative of sorts--that board diversity results in functional improvements to board or corporate operations—a qualitative “business case” for board diversity.  Though the particulars of the functional story vary across respondents, many accounts bear a strong resemblance to Justice Powell’s original exposition of diversity in the Bakke case: a diverse group of people will engage in a richer discussion that will be informed by the multiple perspectives for which their demographic diversity is a proxy.

But it has proven difficult to get beyond this very general narrative; our respondents have been able to provide few detailed or substantive examples of this presumed benefit of diversity. Perhaps this reluctance to examine critically the benefits and drawbacks of board diversity results from the dangerousness of the categories associated with diversity--gender, race, and ethnicity.  The “different perspectives” argument requires the assumption that people of diverse demographic backgrounds really are different in some meaningful way—but difference is a concept that must be handled with great delicacy. Those who are not members of traditionally unrepresented groups do not want to be accused of stereotyping or essentializing by identifying particular unique contributions of members of those groups; no one wants to say anything like “they are especially good at that.”  Conversely, those who are members of traditionally unrepresented groups have a vested interest in presenting themselves as not being different: not as token members of a group, but as individuals who have been selected based on their own merit.  

Nevertheless, when we pressed our respondents we did find a few concrete examples of how contributions of particular female and minority board members may have benefitted the corporation.  Nearly all of these examples, which we excerpt in detail in the article, relate directly or indirectly to employee, community, or customer relations.  Perhaps most meaningfully, female and minority board members were credited with positive contributions in improving employee relations, and in causing the corporation to focus more deliberately on the diversity of its workforce as it considered retention, promotion, and succession issues.  For reasons we elaborate in the paper, this latter point could well suffice as a business justification for the vigorous pursuit of board diversity. Consequently, we find it somewhat curious that this rationale does not figure more prominently in our respondents’ abstract business case (in contrast to the more prominent but less concretely supported Bakke narrative).

As Don Langevoort notes in his commentary to our article, this muddle is surely due in part to the lack of a coherent, over-arching explanation for how boards themselves add to firm value.  (A point Larry Ribstein also makes in his excellent blog post about our paper over at Truth on The Market). Moreover, as Langevoort explains, much of the value added by the board is likely to occur in response to some exogenous crisis and, in any event, outside of the formal boardroom setting.  If so, then the “real action” of the board will be unobservable by the group and unlikely to display much that is attributable to gender or ethnicity.  

Langevoort’s description of the relative unimportance of demographic diversity in a board’s response to crisis situations is consistent with a comment from one of our respondents (a Hispanic female).  When asked about diversity concerns when she served on the board of a company experiencing deep financial distress, she said: 

If you could for a moment imagine yourself in a fast flowing river drowning looking for a lifeboat, you wouldn’t care what color it was and you wouldn’t care who was in the lifeboat.  All you need is a lifeboat. 

In other words, this crisis demanded action rather than introspection about diverse perspectives.  

Finally, Langevoort’s suggestion that board meetings are routine and ceremonial is also consistent with our respondents’ accounts.  We note in the paper some of the seemingly “trivial” contributions to board discussion that our respondents cited as evidence of the value of diversity.  Perhaps these are the best examples our respondents can offer because so much board discussion is, in fact, largely trivial.  

Why our respondents do not offer more meaningful stories of diversity’s impact outside of the boardroom we can only speculate.  One possibility, of course, is that minority and female board members are not invited to be part of the relevant out-of-meeting conversations. This theory is consistent with the account of an African-American male director who told us that he knew that some board members went out in the evening for meals and did not invite him to join them.  Overall, however, other female and minority respondents did not echo this narrative of exclusion.  Needless to say, this possibility, if true, does not bode well for the Bakke “richer conversation” rationale for board diversity invoked so frequently by our respondents, and by many researchers as well. 

That wraps up my series of posts about this draft.  Thanks for listening – and feel free to send comments my way.

 

Related Posts:

Dangerous Categories II (Wow, Men Are Still From Mars and Women From Venus?)

Dangerous Categories: Diversity and Stereotypes in the Boardroom

Duke-UNC-Duke Energy Board Diversity Conference Today

Quotas, Board Diversity, and Corporate Performance

Vancouver Rocks! (Part II)

“Meddling Women” In The Boardroom

Substantial Evidence or Substantial Uncertainty? If Gender Diversity on Boards Clearly Adds Value, Then Why Are There So Few Women on Boards?

Sotomayor, Diversity, And Group Dynamics: Why Do We Care? What Do We Know?

Do The Right Thing – So Long As It’s Free 

Money Is Diversity, Or Diversity Is Money?  

What Corporate Insiders Say About Why Diversity Matters

Wrapping It Up: The Struggle To Explain Why Difference Makes a Difference

 

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Dangerous Categories II (Wow, Men Are Still From Mars and Women From Venus?)

In my prior post, Dangerous Categories: Diversity and Stereotypes in the Boardroom, I posed the question of whether the business case for board diversity depends on uncomfortable race and gender stereotypes, noting that for our respondents, at least, the answer appeared to be “yes.”  While extolling the benefits of board diversity in the abstract, their narratives demonstrate that diversity is an elusive and even dangerous subject to talk about concretely.  I promised to bring you a few illustrations in this post.

As Lissa Broome, John Conley, and I discuss more fully in our forthcoming paper, in explaining their own support of diversity, our respondents most often advanced functional arguments. Prominent among them was the contention that demographic diversity yields a diversity of perspectives, which in turn leads to more productive boardroom discussion.

A specific instance of the different perspectives argument focuses on the benefits of gender diversity (although it also has a race and ethnicity variant).  This rationale invokes the allegedly different sensibilities, reasoning processes, and interpersonal skills of men and women.  Several respondents generalized about women and the ethic of care in ways that were strongly reminiscent of Carol Gilligan’s feminist classic, In A Different Voice.  A white man with years of experience as both an executive and a director made the point in especially colorful terms:

[W]omen are a lot better dealing with egos of other people than men are and they’re a lot more patient and they’re a lot more team oriented and they’re a lot about let’s do this together.  Men are, the New York Times article said and I happen to believe this; just because it’s in the New York Times doesn’t make it true but the average male in America according to this in depth research is lucky to have one and a half friends and the average woman in America typically will have nine to ten to eleven friends because men are so competitive and they’re so blustery and they don’t stay until the diapers are pinned down.  They just have a tendency just to go flying off and so there’s a huge personality difference and it worked at [names company].  The women were extremely good in human relation issues . . . .   (emphasis mine)

Another white male respondent, who has been a director, an executive, and an academic, made explicit reference to men being from Mars and women from Venus, arguing:

There are other instances where in that spirit of men are from Mars and women are from Venus that and probably after we’re all dead it will be accepted and okay to talk about the differences between the sexes and not pretend that everybody is exactly alike but there will be discussions about how do the typical employees feel or react in the organization and I don’t know that may be slightly more than average, women will comment on issues of culture and staff acceptance or staff issues and by staff I mean at all levels

But, like many respondents, he backed away from those generalizations when pressed for specifics.  When asked to elaborate on the extent to which “somebody’s race or somebody’s gender predicts a different kind of point of view,” he admitted that he could not go beyond stereotyping.  By doing so, he seemed to be acknowledging the “dangerousness” of the gender and race categories:

Well you can’t other than to say stereotypically you might see some of that fulfilled but when people of color are on a board, part of the reason they’re on a board is to represent the point of view of people of color so I don’t know whether that’s stereotyping.  I mean that’s why they’re there.  You know?  You don’t want me to represent them.  I can’t.  So I’m not sure quite how to answer your question.

Another subject, a white female lawyer with extensive board service, also suggested that there might be gender-based sensitivity differences that derive from different experiences.  She mentioned—echoing Gilligan--a specifically feminine approach to problem-solving.  She backtracked immediately, however, and wondered whether this was more of a legal skill than a gender-based attribute.  In another demonstration of how dangerous a category gender can be, she characterized her initial suggestion as “really terrible to say”:

I think sometimes women bring a different way of solving problems, a different, I think sometimes what I bring, I mean it’s really terrible to say, but it’s sort of their motherly skills in a way, you know, they’re sort of trying to get people to figure out how to agree and how to find a common solution, and how to cut through all the arguments and synthesize.  I mean they may really be lawyer skills rather than motherly.

These are just a few of many examples from the paper (which, in turn, contains just a few examples from many hours of interview transcripts).  But hopefully it gives some flavor of our respondents’ struggles with the dangerous categories of diversity--gender, race, and ethnicity.  Their argument for diversity requires the assumption that people of diverse demographic backgrounds really are different in some meaningful way—but difference is a concept that must be handled with great delicacy. 

In my next post, I’ll wrap up with some concluding thoughts.

Related Posts:

Dangerous Categories: Diversity and Stereotypes in the Boardroom

Duke-UNC-Duke Energy Board Diversity Conference Today

Quotas, Board Diversity, and Corporate Performance

Vancouver Rocks! (Part II)

“Meddling Women” In The Boardroom

Substantial Evidence or Substantial Uncertainty? If Gender Diversity on Boards Clearly Adds Value, Then Why Are There So Few Women on Boards?

Sotomayor, Diversity, And Group Dynamics: Why Do We Care? What Do We Know?

Do The Right Thing – So Long As It’s Free 

Money Is Diversity, Or Diversity Is Money?  

What Corporate Insiders Say About Why Diversity Matters

Wrapping It Up: The Struggle To Explain Why Difference Makes a Difference

 

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Dangerous Categories: Diversity and Stereotypes in the Boardroom

A few days ago, Forbes ran (yet another) story on (yet another) study on diversity – or, more accurately, the lack thereof – in senior corporate management and boards of directors.  The study by Calvert Group, Ltd (available here, registration required), Examining the Cracks in the Ceiling: A Survey of Corporate Diversity Practices of the S&P 100, found that women hold approximately 18% of director positions and only 8.4% of the highest paid executive positions within the S&P 100.

These numbers should not be terribly surprising, given the most recent Catalyst census of the Fortune 500 in 2009.  Those figures show women holding about 15.2% of Fortune 500 board seats, 3% of Fortune 500 CEO positions, and 15.7% of Fortune 500 corporate officer positions. (Because larger companies tend to have more diverse boards, the slightly higher Calvert board figure is to be expected. See the charts from Catalyst included in this post showing the growth in these figures since 1995.)

Said Barbara J. Krumsiek, President & CEO of Calvert, "Without a pipeline of female and minority executives in highly-paid, highly responsible positions, it will be very difficult to achieve board diversity, which is critical to strong governance and good management." (Emphasis mine) As I’ve noted here repeatedly (see, for example, here and here), the business case for board diversity has not been empirically demonstrated, despite these frequent claims to the contrary.  Lissa Broome, John Conley, and I summarize the most recent research here. 

But I want to leave aside that empirical debate for today and focus instead on a different question: Can the business case for board diversity be made without veering into the dangerous territory of race and gender stereotyping? As we detail in our paper recently posted to SSRN, Dangerous Categories: Narratives of Corporate Board Diversity, it proves pretty tough for our respondents (corporate directors, plus a small number of other relevant insiders, such as regulators and institutional investors).  

The paper is part of a Duke-UNC-Duke Power sponsored symposium on corporate board diversity held last spring, which I blogged about here. The symposium has produced some really excellent papers and responses, including a study by Frank Dobbin, Jiwook Jung & Alexandra Kalev that questions some of the Adams and Ferriera findings, another by Patrick Shin and Mitu Gulati on “showcasing” diversity, which Al blogged about over the summer, and which my colleague Kate Bartlett responds to here.  And Don Langevoort’s excellent response to the Dobbin, Jung, & Kalev and Broome, Conley, & Krawiec papers.  The other papers don’t appear to be up on SSRN yet, but are all excellent contributions to the literature.

But back to the question of the day: does the business case for board diversity depend on uncomfortable race and gender stereotypes?  For our respondents, the answer is primarily “yes.” Our respondents were clear and nearly uniform in their statements that board diversity was an important goal worth pursuing. With a few exceptions, however, the purported contributions of a diverse board were at a level of detail that we would not expect to be the subject of boardroom strategizing.  In addition, when pressed for evidence that would support performance-related arguments for diversity, respondents tended to back away from their initial assertions that demographic differences have functional correlates, frequently providing examples of contributions from female and minority board members related more to their skill sets than to any differences stemming from race, ethnicity, or gender. 

This expressed reluctance to come to specific terms with general claims about the value of director diversity inspired our title phrase: dangerous categories.  That is, while “diversity” evokes universal acclaim in the abstract, our respondents’ narratives demonstrate that it is an elusive and even dangerous subject to talk about concretely.  The fundamental reason for this awkwardness is readily apparent: to argue that diversity matters in some specific way is to argue that diversity is a proxy for difference.  Yet to suggest group-based difference is to open the door to both stereotyping and invidious comparison.  Everyone in the debate has a vested interest in not walking through that door.  Those who are not members of the excluded groups do not want to be heard to say that “they” are all alike, whereas those who are members do not want to point to fundamental differences that might be translated as “less qualified” or “needing assistance.”  So we are left with narratives that simultaneously extol difference and express embarrassment with it.

One narrative that ran counter to this general trend relates to the corporation’s relations with employees. The categories of race and gender appeared less dangerous to our respondents in the context of employee relations.  Both female and minority directors discussing their own role on boards and white male directors discussing the contributions of their female and minority colleagues seemed more at ease with a narrative of difference here.  It is difficult to say with any certainty why this may be.  Perhaps when race and gender are invoked as a means to benefit the professional prospects of other women and minorities either directly (through substantive action) or indirectly (through signaling or role modeling), those categories seem to lose their historically dangerous trappings. 

In my next post, I’ll be back with a few examples to illustrate this tension (though you should read the entire paper, of course!)

Quotas, Board Diversity, and Corporate Performance

 

Last week’s New York Times Room For Debate column addressed the theme “Using Quotas to Raise the Glass Ceiling.”  Although some of the Room for Debate contributors discuss quotas more generally, others specifically address board diversity quotas.  As I’ve noted here before, Norway’s 2002 law requires that 40 percent of all board seats at state-owned and publicly listed companies be held by women.

According to the Times, “since then, Spain and the Netherlands have passed similar laws. Now Belgium, Britain, Germany, France and Sweden are considering legislative measures involving female quotas. And although Germany is also debating such a law, Deutsche Telekom, which is based in Bonn, announced last week that it would voluntarily introduce a quota aiming to fill 30 percent of upper and middle management jobs with women by the end of 2015.”  In addition, as I mentioned here last week, Canada has a pending private senator's bill that would mandate gender parity on boards (though the bill has been tabled at first reading and has not been referred to committee since it was tabled).

But the question posed to the Room for Debate participants is: Do quotas work? Would they work in the U.S.? Does the U.S. need them?

Of particular interest is the response of Amy Dittmar, an associate professor of finance at the Ross School of Business at the University of Michigan, who discusses her study with Kenneth Ahern, also at the University of Michigan.  Their study examined the effect of the Norwegian law on boards and firm value. Ahern and Dittmar found that:

the women that were added to boards to comply with the law had less experience in upper management than their male counterparts and than women who were chosen before the law went into effect. On average, the firms experienced a 2.6 percent drop in company value at the announcement of the new law and, if they had no women on their board, they experienced a 5 percent drop in value. Firms experienced further declines in value over the year that they changed their boards to comply with the law.

Dittmar cautions that the drop in value was not due to the presence of women on boards, but because of less experienced directors on boards.

The other commenters are:

                  Marit Hoel, Center for Corporate Diversity, Oslo

                  Peter Baldwin, author, “The Narcissism of Minor Differences”

                  Sharon Meers, former managing director at Goldman Sachs

            Linda Hirshman, author, “Get to Work”

(HT: Max Eichner)

Board diversity and, particularly, the empirical work on its effects, is a topic that has been much discussed here at the Lounge.  As I mentioned earlier, Duke, UNC, and Duke Energy are sponsoring an entire conference dedicated to the subject next month.  For prior Lounge discussions of board diversity, and especially its impact on corporate performance, see:

Vancouver Rocks! (Part II)
“Meddling Women” In The Boardroom
Substantial Evidence or Substantial Uncertainty? If Gender Diversity on Boards Clearly Adds Value, Then Why Are There So Few Women on Boards?
Sotomayor, Diversity, And Group Dynamics: Why Do We Care? What Do We Know?
Do The Right Thing – So Long As It’s Free 

Money Is Diversity, Or Diversity Is Money?  
What Corporate Insiders Say About Why Diversity Matters
Wrapping It Up: The Struggle To Explain Why Difference Makes a Difference

Vancouver Rocks! (Part II)

In my last post, I shared a few highlights of the people and places I encountered last week in Vancouver.  As I mentioned, the official purpose of my trip was a lecture on corporate board diversity, part of my continuing ethnographic research on the topic undertaken with Lissa Broome and John Conley.

 

Like many other countries, including the U.S., there has been an increasing public focus on corporate board diversity in Canada in recent years.  As shown in the chart below, courtesy of Catalyst, the percentage of board seats held by women in the FP 500 is only slightly less than the percentage held by women in the Fortune 500.  But – just as in the U.S. -- some Canadians believe the percentage should be higher. 

 

For example, Bill S-238, which was recently introduced in the Senate, would mandate gender parity on boards.  But I was told while visiting that it is a private senator's bill which has been tabled at first reading and has not been referred to committee since it was tabled – I take it that means it has little chance of passing.  (HT: Aaron Dhir and Ron Davis) 

 

One thing, though, that I find interesting about the bill is the preamble, featured at the bottom of this post.  Other than the brief allusion to the talent pool, it relies on social justifications for board diversity, rather than the performance-based arguments that are typical in the U.S.  This makes more sense, in my opinion, given our limited current knowledge about the impact of board diversity on firm performance, a topic that I’ve discussed at length in 
prior Lounge posts. (A list of links can be found here, and the announcement for an upcoming conference on the topic is here).

Tomorrow, I’ll conclude this series of posts about my trip with the real highlight: a Bowen Island outing with UBC Law faculty Janis Sarra and Ron Davis.

Image above: the Vancouver cherry blossoms, as seen from my iphone.

Premable:

 

Duke/UNC Corporate Board Diversity Conference

Duke and UNC law schools and Duke Energy are hosting a conference on corporate board diversity April 16th, 2010, at the University of North Carolina.  Admission is free -- more information here.  Paper authors include: Lissa L. Broome (UNC, law), John Martin Conley (UNC, law), John Darley (Princeton, psychology), Frank Dobbin (Harvard, sociology), Lisa M. Fairfax (GW, law), James Fanto (Brooklyn, law), Mitu Gulati (Duke, law), Sung Hui Kim (Southwestern, law), Kimberly D. Krawiec (Duke, law), Patrick Shin (Suffolk, law), Lawrence M. Solan (Brooklyn, law), and Tom Tyler (NYU, psychology).  Commentary by:  Kate Bartlett (Duke, law), Jim Coleman (Duke, law), Jim Cox (Duke, law), Deborah DeMott (Duke, law), Tom Hazen (UNC, law), Jerry Kang (UCLA, law), Donald C. Langevoort (Georgetown, law), and Cindy Williams (Osgoode, law).

The papers and comments will be published in the North Carolina Law Review Volume 89, Issue 3. 

Download the conference flyer here: Download 2DDsympwlogosWIP1000-1

Lissa Broome, John Conley, and I will be presenting (and publishing) new results from our ongoing ethnographic study of corporate board diversity.  In the meantime, read our prior two articles on board diversity: Signaling Through Board Diversity: Is Anyone Listening and Narratives of Diversity in the Corporate Boardroom: What Corporate Insiders Say about Why Diversity Matters