Gender representation on corporate boards of directorsrefers to the proportion of men and women who occupy board member positions. Gender diversity on corporate boards, can be measured by identifying the percentage of women setting on companies corporate board in comparisons to seats occupied by men. Globally, men occupy more board seats than women. For instance statistics shows that in 2015, women held 18% of the board seats on Fortune 1000 companies. The argument standing behind the disproportionate gender ratio of directors is a subject of much debate.
A survey revealed that male directors over the age of 55 cited a lack of qualified female candidates as the main reason behind the low number of female directors. In contrast, in the same study, female directors considered the male-dominated networking that often led to the appointment of directors to be the reason behind women’s slow progress. The gender diversity on boards is a principle issue of equality of treatment, inequality in gender representation on boards can be balanced through applauding standards for equality of opportunity reforms or equality of outcome reforms.
Governments and corporations have attempted to address the disproportionality of gender representation on corporate boards through both types of measures, including legislation mandating gender quotas.Rationale behind gender diversity on corporate boardsThe desire to achieve proportionate gender representation on corporate boards is derived from the principle of equality of treatment. Equality of treatment requires comparable situations to be treated in the same manner and prohibits direct and indirect discrimination. Equality of treatment refers to either equality of opportunity or equality of outcome. Equality of opportunity requires providing everyone with the same opportunity to attain what they desire. Equality of outcome requires every individual to possess an equal share of outcomes such as goods or positions. The Convention on the Elimination of all Forms of Discrimination against Women requires states that have ratified the Convention to guarantee the exercise of human rights and fundamental freedoms to women on an equal basis to men. Further, achieving gender equality, including in economic decision-making processes, is one of the United Nations’ Sustainable Development Goals.Many countries have also opted to pursue this principle through their constitution or through various forms of legislation. For example, the Canadian Charter of Rights and Freedoms which guarantees equality rights, including gender equality, and the Equality Act 2010 in the United Kingdom which protects against discrimination based on sex. In the United States, Title VII of the Civil Rights Act of 1964 prohibits discrimination against employees on the basis of sex. Determinants of gender diversity on corporate boards A number of studies have been conducted to determine the type of companies that are more likely to have female directors on their boards. A study on Spanish small and medium-sized enterprises found that firm performance increases the probability of having a female director. The same study also found that higher corporate ownership and firm risk led to a lower probability of having a female presence on a company’s board. A survey of UK companies found larger companies to be more likely to have a higher proportion of female directors.The findings regarding firm size and corporate risk are consistent with a study conducted on 1002 companies across Brazil, Russia, India, China, the UK and USA. Masayuki Morikawa conducted a study that focused on Japanese companies and found that the probability of having a female director increased for companies that are managed by the owners of the companies, but decreased for Effects of gender diversity on corporate boardsNumerous studies have been undertaken on the effects of gender diversity on company boards with mixed results. In exploring the relationship between female directors and firm performance, Corinne Post and Kris Byron argue that differences in cognitive functions and values between the genders should influence firm performance and a board’s decision making process. Another study by Nada K. Kakabadse et al. suggest that a diverse board will expand the board access to resources and networks, either from the directors’ personal connections or simply by being a symbol through their position as a female director. The theory that gender diversity on corporate boards is of value is further strengthened by a study of 127 Malaysian firms that found stock markets react in a positive manner to the appointment of female directors.The study by Corinne Post and Kris Byron using results from 140 studies found that the presence of female directors on a corporate board has a positive correlation with accounting returns and monitoring and strategizing tasks. However, the study concluded that there is no significant relationship between female directors and market performance, possibly due to a variations in the female director/firm performance relationship between countries with different levels of gender equality.The relationship was found to be positive in those with gender equality and negative in those less gender equality. A study on nonfinancial Spanish small and medium-sized enterprises found a positive relationship between female directors and firm performance using return of assets as a measure of firm performance. Further, a survey of 6500 company boards revealed that an increase in participation by female directors reduces the firm’s chances of becoming embroiled in corporate governance issues. A study of S&P 1500 companies by Maurice Levi, Kai Li and Feng Zhang found companies with female directors to be less likely to acquire other companies and to pay less bid premium if an acquisition occurs.Other studies have found no evidence of a positive relationship between gender diversity and firm performance. A study by Ian Gregory-Smith, Brian G.M. Main and Charles A. O’Reilly III on companies listed on the FTSE 350 found no significant relationship between having a female director and company performance as measured by shareholder return, return on assets, return on equity and price to book ratio. In an interview with 45 corporate insiders, Lissa Broome, John Conley and Kimberly Krawiec found that insiders have difficulty with isolating the particular manner in which female directors contribute solely on the basis of their gender. Further, in the context of emerging economies, the study on Malaysian firms found gender diversity to have a negative effect on firm value in government owned companies, suggesting that the relationship between female directors and firm value might vary across company types.Another study on 30 companies with female directors in the United Kingdom, United States and Ghana found that having a minority female board representation does not affect board performance. This is in line with previous research based on 50 female directors that concluded at least 3 female directors is required to improve a company’s corporate governance.Percentage of women holding corporate board seatsAs of March 2018, 27.1% of board seats of companies on the Australian S&P/ASX 200 index are held by women.In Hong Kong and India, women hold 10.2% and 9.5% of board seats of the Hang Seng Index and BSE 200 index respectively. Women in Japan hold 3.1% of board seats on companies in the TOPIX Core 30 Index.The proportion of board seats held by women in Europe varies significantly. In the Scandinavian countries, Norway leads the way with 35.5% of board seats of the companies in the OBX index held by women. Finland is in second place with women holding 29.9% of board seats on the companies in the OMX Helsinki 25 index. In Sweden, 28.8% of board seats of the companies in the OMX Stockholm 30 index are held by women. Women also hold 21.9% of board seats of the companies on the OMX Copenhagen 20 index in Denmark. In France and Germany, women hold 29.7% and 18.5% of board seats of companies on the CAC 40 index and the DAX index respectively. In the United Kingdom, among the companies in the FTSE 100 index, women hold 22.8% of board seats. At the other end of the scale, women hold only 10.3% of board seats in Ireland and 7.9% in Portugal.In Canada, women hold 20.8% of board seats on companies in the S&P/TSX 60 index. In the United States of America, women hold 19.2% of board seats on companies in the S&P 500 index.In Latin America, only 6.4% of board seats of the 100 largest companies in the region are held by women. Colombia has the highest percentage of female board seats in Latin America with 13.4%. Brazil has the second highest with 6.3%. Chile shows a percentage of female on board equal to 7%.In Africa, a survey of 307 listed companies across 12 African nations found that women hold 12.7% of board seats. Kenya has the largest female board representation of 19.8%, South Africa has 17.4% and Botswana has 16.9%. On the other end, Cґte d’Ivoire has the lowest female board representation of 5.1%.Although, women hold 17.9% of the board seats on Fortune 1000 companies, female board representation varies between industry sectors. In Germany, women consisted of 8% of executive board members of the largest banks in Germany despite holding 18.5% of board seats across industries.Percentage of companies with at least one female directorAs of August 2015, only 2% of S&P 500 companies had all male boards of directors. This is a marked improvement from 2005, when only 12% of S&P companies had at least one female director on their board. All FTSE 100 firms have female directors.The 2014 Catalyst Census found that 26.2% of S&P 500 companies had 24% or more female directors. In Canada, 36.7% of S&P/TSX60 Companies has 25% or more female directors.53 of the 100 largest companies in Latin America have at least one female director. In Africa, 67.1% of 307 listed companies across 12 African nations surveyed had at least 1 female diEncouraging gender diversity on corporate boardsGender quotasOne approach taken by governments to achieve gender equality on corporate boards has been to enact legislation requiring a set quota of female representation on corporate boards. The quota system typifies an equality of outcome approach, which is concerned with the result rather than the means of achieving such a result. Belgium, France, Germany, Iceland, India, Israel, Italy, Norway and Spain currently have legislated quotas for women on corporate boards of publicly listed companies. A study on the 10 countries with gender quotas and 15 countries with comply and explain systems found that countries that adopt gender quotas tend to have several pre-conditions: female labor market and gendered welfare state provisions, left-leaning political government coalitions, and path dependent policy initiatives for gender equality, both in the public realm as well as in the corporate domain.Asia PacificIn India, the Companies’ Act of 2013 imposes a quota of at least one female director on the board of listed companies.In Australia, the ASX Corporate Governance Council announced proposed amendments to its guidelines to include a 30% quota in April 2018. Compliance is enforced only on a ‘if not, why not’ basis. In 2015, the Australian Institute of Company Directors had introduced the same quota as a recommendation.EuropeIn 2006, the Norwegian government introduced quota legislation that required both public and state owned companies to have 40% female board representation by 2008. Failure to comply resulted in fines or company closures. Full compliance was achieved by 2009. The percentage of female board members has since remained between 36% and 40%. Iceland and Spain have introduced legislation requiring 40% of female board representation on publicly traded companies. Finland requires 40% of state owned enterprises to have female directors for 40% of their board seats. The Netherlands requires public companies with more than 250 employees to have female directors for 30% of the board seats.In France, a bill was passed in 2011 requiring 40% female directorship by 2016. This quota is to be implemented on two schedules, one for private companies and one for public companies. Public companies will require 20% female board representation within three years, and 40% within six years. Private companies will have nine years to reach the 40% quota. Failure to comply with these schedules will result in voided nominations and suspended remuneration of board members.Italy requires public companies to have 33% of either underrepresented gender.Belgium passed a law requiring 33% female directorship by 2018. Failure to comply with these schedules will result in voided nominations and suspended remuneration of board members. Middle EastIn 1999, Israel legislated a gender quota requiring one female board director for publicly traded companies.North AmericaQuebec’s Bill 53, passed in 2006, is the only provincial legislation currently in effect in Canada that deals with gender representation on corporate boards. This bill requires an equal number of men and woman on the boards of Crown corporations.California passed a quota law in October 2018, for women on boards of companies headquartered in California, with deadlines in 2019 (for two women on five-person boards) and 2021 (for three women on seven-person boards). It is expected to be challenged as unconstitutional on grounds it violates equal protection.Impact and criticism of gender quotasThe use of gender quotas as a mean of rectifying disproportionate gender representation on corporate boards has been controversial. Some studies have found gender quotas to be beneficial, including through its positive impact on the appointment of a female board chair and a female CEO. However, others argue that quotas inadequately address the larger structural issue known as the glass ceiling. A working paper on the female labor market in Norway found that although a mandated quota led to an increase in female directors, it did not affect female employees of lower positions. Board members are typically appointed in one of two ways: (1) internally, through in-firm appointments of high level executives such as CEOs; and (2) externally, through appointments made from outside of the firm. Quota systems simply affect gender representation of the board and might not affect the number of women who reach the internal pool from which candidates are appointed. So even if there is greater gender diversity on a corporate board, the pool from which candidates are chosen remain disproportionately occupied by men.For example, Norway’s quota system has significantly increased the number of women on corporate boards. However, the quota may not have altered the way women progress through organizations. In 2013, Norway’s public companies had 41% female board representation but women made up only 5.8% of general managers at the public companies. In the same year, at the CEO level, only 6% of listed companies in Norway had a female CEO.Nevertheless, the disparity between internal and external appointments to corporate boards also arises in jurisdictions that have not instituted a quota system. For example, in 2013, 48% of the female executive directors in the United Kingdom were internally promoted, compared to 62% for males.Corporate governance codesAnother approach to addressing the disproportionality on corporate boards has been the adoption of the comply or explain governance system by Governments and organizations such as stock exchanges. This system requires companies to address the issue of proportionate gender representation with regards to board and executive appointments in their company filings and other reports and to explain the reason for any failure to comply with particular gender guidelines issued by the organization. The comply or explain system exemplifies equality of opportunity, an approach to equality whereby all people should be treated similarly, regardless of prejudices, preferences, or historical disadvantages, unless particular distinctions can be justified.Fifteen countries have inserted requirements to report gender diversity board composition in their corporate governance codes….
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Gender representation on corporate boards of directorsrefers to the proportion of men. (2019, Aug 20). Retrieved from https://studymoose.com/gender-representation-on-corporate-boards-of-directorsrefers-to-the-proportion-of-men-essay
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