The relationship between women on corporate Boards of Directors and company positive financial results 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 women on corporate boards was related to positive financial outcomes in countries with stronger shareholder protections.
Companies with women on Boards and subject to rigorous 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 tolerate less financial risk.
As a result, female board members made stronger efforts to monitor the firms and to ensure strategy execution, according to Byron and Post.
The team considered Agency Theory, proposed by Stanford’s Kathleen Eisenhardt, in her theory that Boards of Directors are “information systems” used by key stakeholders to verify organizational behavior.
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.
These 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.
This means that women Board members 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.
From this, they concluded that strong financial outcomes occur in companies with women on their Boards of Directors in countries with strong shareholder protections.
Byron and Post’s analysis illustrates that diverse perspectives provide little benefit if they are not solicited and fully considered in a context of regulatory oversight.
-*When have you observed diverse perspectives associated with increased profitability and performance?
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