The relationship between women on corporate Boards of Directors and company financial outcomes is mixed, according to Syracuse University’s Kris Byron and Corinne Post of Lehigh University.
To clarify conflicting data, they conducted a meta-analysis of 140 existing studies and found that this relationship held in countries with stronger shareholder protections.
Companies with women on Boards and subject to significant shareholder protections reported higher accounting returns or firm profitability.
Accounting returns evaluate a firm’s efficiency in using assets to generate earnings and represent short-term financial performance, noted University of Mississippi’s Richard Gentry and Wei Shen of Arizona State University.
Another financial performance measure in Byron and Post’s meta-analysis was market performance, defined by University of Chicago’s Richard H. Thaler, as marketplace behavior that reflects expectations of a firm’s long-term value.
Women on Boards of Directors provide “diversity of thought and experience” and may tolerate less financial risk.
As a result, female members typically made stronger efforts to monitor the firms and to ensure strategy execution, according to Byron and Post.
To interpret their findings, the team considered Agency Theory, drawn from work by Stanford’s Kathleen Eisenhardt, suggesting Boards of Directors are “information systems” used by key stakeholders to verify organizational behavior.
In addition, these systems are influenced by Directors’ individual cognitive frames, derived from their diverse values and experiences, argued Arizona State’s Amy Hillman and Thomas Dalziel of University of Cincinnati.
Likewise, diverse cognitive frames yield more favorable organizational outcomes only when teams “engage in mutual and collective interaction [and] share information, resources, and decisions,” according to Upper Echelons Theory (UET) developed by Penn State’s Donald Hambrick.
Specifically, women Board members tend to affect group decision-making and financial performance when other Board members are willing to consider their diverse perspectives and experiences.
Strong shareholder protections provide “an information-processing stimulus that motivates (Boards) to leverage the decision-making resources (i.e., knowledge, experience and values) that women bring,” asserted Byron and Post.
As a result, they attributed positive financial outcomes to companies with women on their Boards of Directors in countries with these protections.
Previous Blog posts have noted that women’s contribution to group decision-making is not always fully accessed without this type of mandated “information-processing stimulus.”
However, Byron and Post’s analysis illustrates that diverse perspectives provide little benefit if they are not solicited and fully considered.
-*When have you observed diverse perspectives associated with increased profitability and performance?
- Diverse Teams Analyze Problems More Effectively
- Male Peer Raters Discount Women’s Expertise in Science, Engineering
- When Do Women Talk More than Men?
- Air Time Matters: Speak Up in the First Five Minutes of a Meeting
- When Women Predominate in Groups – Stigma Contagion
- Women Hedge Fund Managers Outperform Male Counterparts
- Startup Success Correlates with Women Executive Involvement
- Large-Cap Companies with Women Board Members Outperformed Peers
- Executives’ Financial Risk Tolerance Related to Marital Status
- Useful Fiction: Optimism Bias of Positive Illusions
- Emotional Awareness Enables Focus, Risk-taking Even When “Stressed”
- Genes and Neurotransmitters Influence Investment Risk-Taking: Implications for Taking Career Risks?
- Unrealistic Optimism Drives Profitability
- Gender Differences and Diversity in Corporate Interaction Styles
Blog – Kathryn Welds | Curated Research and Commentary
LinkedIn Open Group Psychology in Human Resources (Organisational Psychology)