In October, Healthcare Governance Review reported that Harriet Harman, minister for Women and Equality, has told the Treasury Select Committee that the Britain’s boardrooms must have more women on them (click here).
Speaking on Tuesday 20 October in relation to how boards of City firms could improve Britain’s economic performance through boardroom diversity, she told the Committee “If you want to make sure you don’t have the nightmare of men-only boards, you actually have to change the terms on which men and women participate, you have to change the culture and working practices because the greater good you are aiming for is to make sure you have diverse boards and a proper meritocratic approach.”
Healthcare Governance Review has come across an interesting academic paper Women in the boardroom and their impact on governance and performance by Renee Adams (Australia) and Daniel Ferreria (London).
Adams and Ferreira, in a study of US corporate firms, state that “Many proposals for governance reform explicitly stress the importance of gender diversity in the boardroom. In the UK, the Higgs (2003) report, commissioned by the British Department of Trade and Industry, argues that diversity could enhance board effectiveness and specifically recommends that firms draw more actively from professional groups in which women are better represented. If companies do not voluntarily reserve a minimum of 25% of their board seats for female directors, Sweden has threatened to make gender diversity a legal requirement ………The most extreme promotion of gender diversity occurs in Norway, where since January 2008 all listed companies must abide by a 40% gender quota for female directors or face dissolution.”
In their paper, Adams and Ferreira say they provide new evidence that is relevant to the ‘women on boards’ debate by investigating the hypothesis that gender diversity in the boardroom affects governance in meaningful ways. In particular, they ask the following questions. First, do measures of board inputs (director attendance and committee assignments) vary with gender diversity? Second, does the gender composition of the board affect measures of governance, such as chief executive officer (CEO) turnover and compensation? Finally, does the effect of gender diversity on governance matter sufficiently to affect corporate performance?
The researchers found that gender diversity in boards has significant effects on board inputs. Women are less likely to have attendance problems than men. Furthermore, the greater the fraction of women on the board is, the better is the attendance behaviour of male directors. Holding other director characteristics constant, female directors are also more likely to sit on monitoring-related committees than male directors. In particular, women are more likely to be assigned to audit, nominating, and corporate governance committees, although they are less likely to sit on compensation committees than men are.
Women also appear to have a significant impact on board governance. The researchers found direct evidence that more diverse boards are more likely to hold CEOs accountable for poor performance.
The evidence on the relation between gender diversity on boards and firm performance was more difficult to interpret. The researchers found that firms perform worse the greater is the gender diversity of the board. This result is consistent, they say, with the argument that too much board monitoring can decrease shareholder value. Thus, they conclude, it is possible that gender diversity only increases value when additional board monitoring would enhance firm value.
If the key findings of Adam’s and Ferreira’s research can be extrapolated to the case of NHS boards, who tend to ‘fail’ because of a lack of sound monitoring of management, we might reasonably conclude that more diverse boards would be more likely to hold the CEO accountable for poor performance and, in general, would enhance board monitoring of management.
The full academic paper Women in the boardroom and their impact on governance and performance by Renee Adams and Daniel Ferreira can be downloaded here.