By Dr. Paul Dunn
The European Union justice committee announced that it wants to coerce firms into having women occupy at least 40 per cent of the seats in the boardrooms of EU firms. This follows on the heels of Norway, Spain and France that have already instituted 40 per cent quotas. Currently only about 14 per cent of the boards of large EU firms are gender diverse.
The use of quotas raises an interesting question. If firms are forced to have female corporate directors, will these women be utilized by being put on board committees, or will they simply be used as window-dressing, sitting in the boardroom to satisfy an externally imposed quota requirement? I recently investigated the election of 318 new corporate directors to the boards of publicly traded companies in Canada to find out if gender influences board committee membership.
One of the duties of corporate directors is to provide advice and counsel. Boardrooms that have directors with diverse backgrounds and experience are better able to present more varied options and opinions. This should greatly enhance the decision making capability of the board. The directors bring their human capital to the boardroom table.
Human capital represents the unique talents, experiences, training, and education of the corporate director. Research on corporate directors finds that female directors often have different professional experiences than male directors. Women tend to have broad non-business backgrounds augmented with advance degrees, such as MBAs, and international work experience. Female directors who have these skills can make substantial contributions when providing advice and counsel to the management of the firm.
On the other hand, occasionally firms will decouple organizational structures from the normal business routines of the firm. They will window-dress the organizational structure to convey the appearance that the firm is complying with social norms and expectations of how firms should behave, while at the same time ensuring that the structure has no impact on the firm’s actual operations. For example, firms can develop quality control standards and procedures, but then not hire any quality control inspectors to monitor the firm’s operations.
So, are female corporate directors used to convey the appearance of gender diversity, or are they appointed to board committees that will benefit from their unique human capital skill set? More specifically, after they are elected to boards of directors are put on important board committees where their talents and skills can be utilized? Or, are they marginalized by being appointed to minor board committees, or to no committees at all.
Utilization of New Corporate Directors
I drew a sample of new corporate directors (159 women and 159 men) who were elected to the boards of 318 Canadian firms. For each of these directors it was the first time that she or he joined the board of directors of a publicly traded Canadian corporation. I then examined the various board committees, if any, that the new director was appointed to within one year of assuming a seat at the boardroom table. There were three very interesting results.
First, the new female corporate directors were appointed to more board committees than were their male counterparts. The women, on average, were appointed to 1.2 committees. The men, on the other hand, were appointed to an average of only 0.5 committees. The women were utilized much more than the men.
Second, the women tended to be appointed to the powerful boardroom committees: audit, governance and compensation. These three committees have critical control and oversight responsibilities. They are crucial to the success and governance of the firm. Membership on these board committees cannot be taken lightly, nor can the directors who serve on these committees.
Finally, insiders were rarely appointed to any board committees. This is consistent with the good governance recommendations of the 1994 Dey Report commissioned by the Toronto Stock Exchange. The Dey Report, which contains many of the fundamental principles of Canadian corporate governance, argues that because of their role as overseers of management, boards should be composed of outside independent directors, rather than managers of the firm.
No Female Window Dressing in the Boardroom
Within one year of being elected to the board of directors, more than half of the male directors were appointed to no board committees, whereas the new female boardroom directors were appointed to the powerful committees that have important stewardship responsibilities. Overall, these female corporate directors are not being marginalized. Their unique talents and skills are recognized and utilized: no window-dressing for these female corporate directors.
Dr. Paul Dunn is an associate professor of accounting at the Goodman School of Business, Brock University. His research focuses on issues in accounting, ethics, and corporate governance. He can be reached at email@example.com. The full length version of his study that is summarized in this article is “The role of gender and human capital on the appointment of new corporate directors to boardroom committees: Canadian evidence,” International Business Research (2012) 5: 16-25.