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Gender Diversity in the Boardroom: Finding an Optimal Level?

October 26, 2017 • LEADERSHIP, Women in Leadership, Corporate Governance

By Won-Yong Oh, Loren Falkenberg, and Jim Dewald

There has been an increase in the number of women serving on boards. Today, everyone talks about “more” women in the boardroom. The more, the better? Probably, not always. In this article, the authors propose that there should be an “optimal” level of gender diversity in the board depending on organisational and company needs.

 

Recent tracking of gender balance on corporate boards reflects that there has been an increase in the number of women serving on boards.1 Among Fortune 500 companies, about 20% of the directors are female, and one-third of new director positions have been filled by women.2 A number of European countries, including Norway, Germany, France, Belgium, Iceland, and Italy, have legislated quotas for female board members.3 But even with this positive trend, there is an ongoing debate on how to increase gender diversity; however, we suggest that a more critical area of focus is identifying the appropriate gender balance and qualifications to improve board performance.

Research indicates that female directors broaden board discussions, facilitate collaborative approaches to leadership, and increase attention towards stakeholders’ interests.4 More importantly, having even one female director may improve board performance, while having more than one positively changes the dynamics in the boardroom.5

After completing a series of interviews with more than twenty male and female directors from North America, Europe, and Asia, we conclude, however, that simply enforcing “a gender quota of 40% (e.g. Norway) or less” will not lead to improved board performance. Rather than enforcing a “broad-based quota” or assuming that a “set diversity ratio fits all organisations”, we propose it is more important to align the gender composition and skills/knowledge matrix with the operating context of the organisation (i.e. the demographics of the key stakeholders).



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About the Authors

Won-Yong Oh is the Lee Professor of Strategy at the Lee School of Business, University of Nevada, Las Vegas in the US and an Adjunct Professor at the Haskayne School of Business, University of Calgary in Canada. His research areas include Board of Directors, Top Management Team, and Corporate Social Responsibility.

Loren Falkenberg is an Associate Dean in the Haskayne School of Business, University of Calgary.  She is an Academic Director for Governance Programmes of the Institute of Corporate Directors in Canada and taught at the Haskayne School of Business, and has served on three boards (including as Chair).

Jim Dewald is the Dean of the Haskayne School of Business, University of Calgary. He has served on over 20 boards, including 5 corporate boards in leadership positions (Chair or Lead Director). Prior to entering academe, he was active in the Calgary business community with senior leadership positions (CEO).

 

References

1. Credit Suisse. “The CS Gender 3000: The Reward for Change” September 2016.

2. http://fortune.com/2015/11/19/fortune-500-women-board-seats-2016-prediction/

3. https://www.thestar.com/opinion/commentary/2016/09/26/quotas-required-to-have-more-women-on-corporate-boards.html

4. Post, C. and Byron, K., 2015. Women on boards and firm financial performance: A meta-analysis. Academy of Management Journal, 58(5), pp.1546-1571.

5. Kramer, V.W., Konrad, A.M., Erkut, S. and Hooper, M.J., 2006. Critical mass on corporate boards: Why three or more women enhance governance(pp. 2-4). Boston: Wellesley Centers for Women.

6. Hillman, A.J., Shropshire, C., and Cannella, A.A., 2007. Organizational predictors of women on corporate boards. Academy of Management Journal, 50(4), pp.941-952.

7. http://ir.amwater.com/officers-and-directors

8. http://business.financialpost.com/executive/e-suite-women/women-are-slowly-getting-more-seats-in-the-board-room

9. http://fortune.com/2015/06/29/female-ceos-fortune-500-barra/?iid=sr-link9

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