Women on Corporate Boards Are Good For Equality and Equity, Study Shows

on November 26 2013 12:31 PM
  • Baer Schapiro 2010
    Shiela Baer (left) and Mary Schapiro. Reuters
  • No women directors in 41 Massachusetts public companies: report
    In Massachusetts of the United States, 41 largest public companies have no women on their board of directors and 52 percent of the 100 companies have no women executive officers, according to The Boston Club's latest report. Reuters
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A Canadian study shows that having more women on corporate boards is good for equity as well as equality. The findings factor into the global debate about the usefulness and necessity of gender quotas, which have recently gained popularity in many European countries.

The researchers found that companies pay about 15.4 percent less for successful acquisitions for every female member of their board, as well as experiencing a 7.6 percent decrease in overall takeover bids.

The paper,  titled “Director Gender and Mergers and Acquisitons,” was written by two professors and a former Ph.D. student from the University of British Colombia’s Sauder School of Business and will be published in the Journal of Corporate Finance.

“On average, merger and acquisition transactions don’t create shareholder value,” said Kai Li, the study’s co-author and finance professor at Sauder, in a Nov. 25 press release.

“Women are having a real impact in protecting shareholder investment and overall firm performance,” she said.

They surveyed a large sample of acquisition bids made by companies in the S&P 1500 (which includes all stocks in the S&P 500, 400 and 600) between 1997 and 2009. The authors found the difference between the firm’s stock price before the merger deals were signed and the final offer price. Then, they correlated this data with the number of female board members to get the final results.

Researchers say that women aren’t as interested in risky transactions and require high rewards when they do invest.

“The finding adds fire and force to recent calls to mandate a minimum number of women on the boards of publicly traded companies,” said professor Li.

In September, the Ontario Teachers’ Pension Plan, which manages $130 billion of assets, asked the Ontario Securities Commission to delist companies that don’t have at least three female board directors by 2020. There have been efforts in the past to encourage firms to voluntarily report diversity rates, but they have not been very successful.  

“This is something that people have been trying to promote for over a decade, and the numbers just are not showing any substantial progress in increasing female representation on boards of directors,” said Wayne Kozun, senior vice president of public equities at the teachers union, to the Globe and Mail. 

In Canada, women account for 11 percent of directors on the boards of companies in the S&P/TSX index, with little growth in recent years.

In the past decade, gender quotas have been catching on worldwide, especially in Europe.  

Norway is the first country in the world to legally impose a corporate gender quota. In 2003 a law required that nearly 500 firms have boards composed of at least 40 percent women, or be shut down, according to Reuters. Since then, France, Malaysia, Belgium, Iceland, Italy, the Netherlands and Spain have followed suit. Norway reached its targets in 2009.

German Chancellor Angela Merkel announced earlier this month that German companies must give 30 percent of non-executive board seats to women by 2016. Currently, German women hold roughly 12 percent of corporate board seats.

“It’s a toad that we’re going to have to swallow,” said parliamentarian Michael Fuchs of the Christian Democrats, the party that aligned with Merkel’s Social Democrats to introduce the legislation, according to the Financial Times. 

The decision came despite what Merkel had said against quotas in the past. In 2011 she proposed that pressure on the private sector to introduce more family-friendly working conditions would work better than a quota, despite the fact that only 3.2 percent of women were in executive positions.

“She is of the opinion that you have to give companies another chance” to rectify the underrepresentation of women, said Merkel’s spokesman Steffen Seibert at a conference in 2011.

She may have had a point.

A recent study from the University of Michigan found that quotas in Norway didn’t produce the financial gains others may have expected. It suggests that as companies struggled to find female board members to survive, they weren’t as selective.

“The quota led to younger and less-experienced boards, increases in leverage and acquisitions, and deterioration in operating performance, consistent with less-capable boards,” reads the 2011 report “The Changing of the Boards.” 

A 2011 report from the World Bank outlined the possible negative outcomes of introducing corporate gender quotas.

“While female entry on boards is correlated with changing management practices, this change appears to adversely influence short-run profits,” the report reads.

“Whether this is partly drive by negative perceptions of female management choices remains an open question.”

Meanwhile their research showed that if voters are forced to select female candidates, they might feel overly restricted. “They may lash out against women,” it says.

In the United States, women currently hold 16.6 percent of board seats, according to a 2012 survey of Fortune 500 companies.  The rate that has not changed in seven years. 

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