Gender Diversity and Corporate Governance

“In the future world, we will have a lot of women leaders… Because in the future, people will not only focus on muscle, power, but they will focus more on wisdom. They focus on caring and responsibility." - Jack Ma

Newswise — More than two decades after the United Nations’ Beijing Declaration and Platform for Action pledged to take the necessary steps to remove all hindrances to gender equality and the empowerment of women and LGBTQIA+, support for gender equality is lacking effective action to boost women’s representation at the tables of power. But the slow progress seen in closing the gender gap. According to the recent Global Gender Gap Report (2021), it will take another 135.6 years to close the gender gap based on the current rate of progress. In addition, the covid-19 pandemic and economic crisis has raised new barriers to building inclusive and prosperous economies and societies. In response to the gender diversity challenge, a wide range of initiatives and solutions have been proposed. Several countries have legislated boardroom gender quotas and propose policies requiring board composition disclosure (Terjesen et al., 2015).

Despite the social pressure on gender equality, a diverse range of academic literature does not explicitly develop a theoretical framework explaining the gender gap in leadership. At the individual level, gender stereotyping fosters bias against women in managerial selection, placement, and promotion, and training decisions (Schein, 2007). Traditionally, the most appreciated leaders possess characteristics commonly associated with masculinity, such as competitiveness, self-confidence, ambition and aggressiveness (for example, see Koenig et al., 2011; Schein, 1973). Yet, researchers have shown that many masculine traits did not always benefit the companies. Some researchers argue that female leaders have important traits, such as warmth and empathy that are useful during a crisis. Female executives lead differently than male executives (for example, see Gipson et al., 2017; Kirsch, 2018; Terjesen et al., 2009). They tend to be collaborative and enhance participative decision making (for example, see (Bart & McQueen, 2013; Mano-Negrin & Sheaffer, 2004)). At the same time, it is also argued that female executives behave like men in order to succeed.

At the board level, a voluminous body of literature suggests that board gender diversity brings unique perspectives to the boardroom (For example, see Arfken et al., 2004; Van Der Walt et al., 2006). If a diversified board can bring a broader range of backgrounds among directors, then a more diversified board will collectively possess more information and will have a higher chance of making better decisions. In addition, the diversity of the board can enhance the board independence, consequently increased board diversity could lead to a better board monitoring function (for example, see Adams & Ferreira, 2009; Gul et al., 2011; Konrad et al., 2008; Papangkorn et al., 2019; Srinidhi et al., 2011; Terjesen et al., 2009). At the same time, board gender diversity also gives a positive signal to stakeholders that the company cares about the societal diversity in their governance (for example, see Bernardi et al., 2006; Daily & Dalton, 2003; Martin et al., 2008). On the other hand, a diverse board may cause higher decision-making costs in boards, and increase the likelihood of conflicts and friction in boards(Adams & Ferreira, 2009).
 

Gender is much more than biological differences between male and female. It is socially constructed characteristics of men and women, such as norms, behaviors, and roles that a society considers appropriate for men and women. It varies from society to society and can be changed. Today, LGBTQIA+ people are more accepted than ever. This is also true in the business world. Many companies around the world have started to create LGBTQIA+ friendly parental policy. Recently, several academic studies have also focused on LGBT-supportive policies. Prior studies find that LGBT-friendly policies provide both human-resources-related benefit and financial benefit (for example, see Chintrakarn et al., 2020; Ellis & Riggle, 1996; Johnston & Malina, 2008; Metcalf & Rolfe, 2011; Patel & Feng, 2020; Pichler et al., 2018; Wang & Schwarz, 2010). However, there is some evidence suggesting opportunity-seeking mangers may use this policy for their self-benefit, particularly their compensation(Kyaw et al., 2021).

Most stakeholders recognize the importance of different kinds of educational backgrounds and functional expertise, but they tend to underestimate the benefits of gender diversity. Thus, further steps are needed to improve gender equality in the workforce. Achieving board gender diversity is likely to generate positive externality. The implementation of gender equality supportive policies, such as appointing females in senior management roles and implementing LGBT hiring campaigns, can give a positive signal to both employees and investors. Ethical postures of this kind have proved to be contributory in building relationships with other stakeholders, which in turn help build the firms’ reputation and value creation. Furthermore, from agency perspective, the board gender diversity could lead to higher independence of directors, resulting in a better board monitoring function on behalf of the shareholders. In other words, board gender diversity could reduce agency cost of the company and again, potentially lead to better firm performance. Firms with gender equality supportive policies tend to provide a less stressful work environment and have lower employee turnover, which in turn enhances human and social capital of the company. Nevertheless, these benefits also come with costs. In some cases, managers may adopt gender equality friendly policy for their own benefit. This leads to several interesting avenues for future research.

                     

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