ORE Open Research Exeter TITLE Women Directors on Corporate Boards: A Review and Research Agenda AUTHORS Terjesen, S; Sealy, R; Singh, V JOURNAL Corporate Governance: An International Review DEPOSITED IN ORE 11 November 2016 This version available at http://hdl.handle.net/10871/24385 COPYRIGHT AND REUSE Open Research Exeter makes this work available in accordance with publisher policies. A NOTE ON VERSIONS The version presented here may differ from the published version. If citing, you are advised to consult the published version for pagination, volume/issue and date of publication Manuscript ID CGIR-2008-0267RI.R1 to be published 2009. Correct citation: Terjesen, S.; Sealy, R.; Singh, V. "Women Directors on Corporate Boards: A Review and Research Agenda", Corporate Governance: An International Review - Forthcoming EXTENDED ABSTRACT Manuscript Type: Conceptual (Review) Research Question/Issue: This review examines how gender diversity on corporate boards influences corporate governance outcomes that in turn impact performance. We describe extant research on theoretical perspectives, characteristics and impact of women directors on corporate boards (WOCB) at micro, meso and macro levels: individual, board, firm and industry/environment. Research Finding/Insights: To the best of our knowledge, this is the first comprehensive review of WOCBs, incorporating and integrating research from over 400 publications in psychology, sociology, leadership, gender, finance, management, law, corporate governance and entrepreneurship domains. In addition, we organized our findings to provide a new lens enabling the field to be readily examined by level and by theoretical perspective. The review indicates that WOCB research is about improving corporate governance through better use of the whole talent pool’s capital, as well as about building more inclusive and fairer business institutions that better reflect their present generation stakeholders. Theoretical/Academic Implications: With only one in ten papers addressing theoretical development, the predominant perspectives are human and social capital theories and gender schema at individual level; social identity, token and social networks theories at board level; resource dependency, institution and agency theories at firm level, and institutional, critical and political theories at environmental level. We provide a short synopsis of findings at each level, and conclude with an outline of fruitful directions for future research. 1 Practitioner/Policy Implications: There are increasing pressures for WOCBs, from diverse stakeholders such as the European Commission, national governments, politicians, employer lobby groups, shareholders, Fortune and FTSE rankings, best places for women to work lists as well as expectations from highly qualified women who are likely to leave if they see no women board members. Rationales generally draw on the business case, however the moral justice case is also used by those who seek a fairer gender balance in all aspects of society. From our review, the ‘Impact’ section charts the effect of WOCB at all four levels of analysis. INTRODUCTION As recent corporate governance scandals and the Sarbanes-Oxley legislation, Higgs Review and other initiatives draw attention to the importance of corporate governance, scrutiny has turned to the composition of corporate boards of directors. For example, the demise of Icelandic bank Kaupthing led to the immediate resignation of the entire board of directors (The Age, 2008). In the wake of the failure of other financial institutions such as Lehman Brothers, investors, governments and concerned parties around the world are demanding answers to questions such as that posted in two separate official blogs of Wall Street Journal and Business Week: ‘Where was Lehman’s Board?’ (Berman, 2008; Thompson, 2008). While the market plunge has brought recent press to the attentiveness of the directors of the board, practitioners and academics have long followed board composition, including the slow advancement of women onto corporate boards, despite nearly 40 years of equal opportunities policies. A Google search reveals 340,000 webpages for female or women corporate board directors, including 25,400 webpages in Google Scholar. Extant research emerges from an interdisciplinary academic community, across psychology, sociology, leadership, gender, finance, management, law, corporate governance and even entrepreneurship. It 2 is timely therefore to pull together research on the nature and impact of gender diversity in board composition as a facet of corporate governance. Female representation in corporate decision-making is an important issue for policymakers. For example, the Norwegian government requires that boards of directors of publicly held firms be comprised of at least 40% women (Hoel, 2008) and the Spanish government has committed to 40% by 2015 (De Anca, 2008). Around the world, other countries are considering legislation while developing economies such as India and China, and Middle East countries (Tunisia and Jordan) are beginning to recognise the importance of developing female talent up to board level (Singh, 2008). To the best of our knowledge, this is the first comprehensive review of extant research on women on corporate boards (WOCB). We reviewed over 400 published references, including articles, book chapters, working papers and reports. The literature was identified through EBSCO, ProQuest and Google Scholar searches. In press and working papers were solicited by e-mail from forty scholars of gender and corporate governance who recently published in leading journals or presented papers at conferences. In the following sections, we review the literature of women directors in three key areas: theoretical perspectives, characteristics and impact. We recognize that there are additional areas, such as initiatives to promote women to directorships; however we consider these outside the scope of our studyi. A final section suggests directions for future studies in existing research streams, as well as major recommendations for new research agendas. We explore each major theme across four micro, meso and macro levels: individual, board, firm, industry/environment. By individual, we refer to the individual Director, or aspirant Director. The board level captures the processes and interactions 3 that occur within the team. We use the ‘firm’ category to describe experiences in other parts of the firm, outside the board and also firm strategy and structure. Industry/environment captures the local, regional and national industrial and external environments. While these categories are overlapping given the fluid nature of business, we hope this structure guides our reader and aids future researchers. Table 1 provides an overview of the review. Insert Table 1 about here THEORETICAL PERSPECTIVES The vast majority of academic literature on WOCBs (approximately 160 of 180 published articles, working papers and book chapters reviewed) does not explicitly develop a theoretical framework. Indeed, the majority of WOCB literature is descriptiveii. We identified twenty theory-based studies of the phenomenon of women on boards that employ a variety of frameworks at micro, meso and macro levels. The major theoretical perspectives and, in most cases, a short synopsis of findings, are described below. Consistent with the feminist mode of inquiry, most studies explore theoretical perspectives on what forces explain women’s underrepresentation on corporate boards. Several theories bridge two or more levels of analysis. For example, gender self-schema is an individual perception which can be manifested in groups, firms, industries and the broader institutional environment. Some studies incorporate two or more theoretical perspectives. For example, Burke and Nelson (2002) examine how a combination of individual and organizational factors explains the exclusion of talented women from top management. 4 Individual At the individual level, theoretical perspectives tend to focus on the characteristics of WOCBs (e.g. human capital, status characteristics, social capital) and the individual’s gender-based perceptions (e.g. self-schema, trust). Human Capital. Human capital theory (Becker, 1964) examines the role of an individual’s cumulative stocks of education, skills and experience in enhancing cognitive and productive capabilities which benefit the individual and his/her organization. Compared to men, women have traditionally made fewer investments in education and work experience and this is reflected in lower pay and promotion (Tharenou, Latimer and Conway, 1994). Directors bring unique human capital to the board (Kesner, 1988) and individuals must obtain extensive stocks of human capital in order to be considered for directorships (Kesner, 1988). Gatekeepers, who are mostly male, do not offer women the same organizational rewards such as training and development, as well as promotion and pay (Oakley, 2000). A commonly held assumption of board selectors is that women lack adequate human capital for board positions (Burke, 2000). Singh, Terjesen and Vinnicombe (2008) dispel this myth in their study of multiple human capital dimensions of new directors of FTSEiii 100 firms in the UK, finding that women are more likely to have MBA degrees and international experience. Furthermore, compared to their male counterparts, new female directors are significantly more likely to have experience as smaller firm board directors, but less likely to have CEO/COO experience. Human capital theory has been extended in other meaningful waysiv. For example, Westphal and Milton (2000) examine the role of a director’s prior experience on his/her ability to avoid out-group biases and to exert influence on the board, finding that women are significantly less likely to have focal director experience in the majority 5 and to exert influence. Shrader, Blackburn and Iles (1997) leverage resource-based theories of competitive advantage to describe human capital as a key resource for the firm, bringing diversity perspectives that facilitate team problem solving. Status Characteristics. Status characteristics theory describes how standards of ability for low-status groups (such as women) are higher than for high-status group members (e.g. men). Thus, to be perceived as being of high ability, a woman must provide more evidence than would her male counterpart (Biernat and Kobrynowicz, 1997). Considering this theory in parallel with women’s traditional ‘outsider’ status, Hillman, Cannella and Harris (2002) find that women directors are significantly more likely to have an advanced degree than their male counterparts. Gender Self-Schema. Self-schema is an individual’s psychological construction of self, based on a number of aspects, most commonly gender. Gender self-schemas are developed from childhood and serve as mental models through which information is processed. Generally, male gender self-schemas are based on roles, norms, values and beliefs which are considered appropriate for men, such as income provider, dominance, aggression, achievement, autonomy, exhibition and endurance (Konrad et al, 2000). In contrast, female gender self-schemas are largely based on roles, norms, values and beliefs held about women such as homemaker, affiliation to others, nurturance, deference and abasement (Konrad et al, 2000). These self-schemas are present from the point at which male and female graduates evaluate and enter the workplace (Terjesen, Freeman and Vinnicombe, 2008). Gatekeepers have views of gender-appropriate behaviors, roles and expectations which may bias executive selection (Oakley, 2000). Board 6 At the board level, theory focuses on group-level processes such as social identity, homophily and in-out groups. While composition is important, board processes may be even more critical to performance (Huse, 2005). Social identity. Several related theories of social groups (e.g. attraction- selection-attrition, homophily) explore how individuals seek to surround themselves with people who share similar demographic profiles, perspectives and values, which are then reinforced in intragroup communication. Tajfel and Turner’s (1986) social identity theory describes how individuals define themselves according to their membership in certain groups such as gender, race, class and occupation. Individuals consider themselves and others as either in- or out-group members and are more likely to provide higher evaluations of in-group members, making it more difficult for out-group individuals to join these groups. These theoretical frameworks have been used, independently or in parallel, to describe women’s exclusion from social networks. For example, Kanter (1977)’s work on homosocial reproduction highlights how individuals in powerful positions replicate male-dominated power structures in corporations. Leveraging theories of homosocial reproduction, Daily and Dalton (1995) describe how CEOs, who are mostly men, are more likely to lead boards composed of like others, of the same gender, as well as age, background and experience. Following Kanter’s (1977) work on tokenism, Erkut, Kramer and Konrad (2009) explore three dimensions of numerical representation of women: one woman, two women and three women. Drawing on Asch’s (1951) conformity theory and the role of vision, they describe how a critical mass of three or more women creates ‘normalization’ where gender is no longer a barrier to communication and where 7 women directors are more likely to feel comfortable, supported and freer to raise issues and be active. Westphal and Milton (2000) explore the idea that social exclusion due to minority status (e.g. as a woman) could be overcome through ingratiatory behavior. Social identity and social network and cohesion theories have also been put forward as possible explanations for the paucity of women on boards (Singh and Vinnicombe, 2004). Social Network and Social Cohesion. The elite group can be seen as a social network. Social network theory predicts that individuals with access to resources valuable to the company are likely to have the best chance of entering the elite network. Directors are nodes in a network of organizational linkages, and contribute resources such as information and knowledge to their board, their organization and to other members of the network, sharing power and acting as a socially cohesive group (Westphal and Zajac, 1995; Windolf, 1998). A board is a privileged closed group with its own rules and ways of thinking. Directors facilitate invitations to join other boards, by recommending and sponsoring colleagues like themselves, whom they know are likely to fit the existing mould. As powerful positions are a marker of relevant experience, contacts and endorsement, those who have held CEO positions are particularly attractive to the network. Hillman, Cannella and Harris (2002) take a network theory perspective in examining how firms may wish to increase their odds of acquiring resources and surviving by becoming more central in networks and linkages to other firms. Their subsample of 89 white female and 99 white male board members reveals that women directors are more likely to join subsequent boards at faster rates than their male counterparts. 8 Gendered Trust. Another line of recent psychological theory enquiry is trust. Bigelow and Parks (2006) leverage gendered theories of trust to explore board relationships. While trust is variously defined in the literature, scholars in many fields identify gender differences, for example in trusting behaviour, with men more likely to have the basis of their trust in others, particularly shared group status (collective trust) and women more likely to trust both on this collective trust as well as on the basis of a personal relationship (relationship trust) (Maddux and Brewer, 2005). Building on research highlighting that women have identifiable traits that make them well positioned for roles that require trust, Bigelow and Parks (2006) report that investors are willing to invest 300% more in male-led firms than in female-led firms. Ingratiation. Within the social psychology literature, an important dimension of interpersonal influence is ingratiatory behaviour to enhance one’s attractiveness and gain favour with others. Following studies linking ingratiation to career success, Westphal and Stern’s (2000) survey of 1012 top managers of Forbes 500 firms reveals that top managers who display ingratiatory behaviour toward their CEO are more likely to be appointed to boards of other firms where their CEO is a director or is indirectly connected through a board interlock network. This behaviour can help overcome the barrier of demographic minority status such as gender. Leadership. While not directly developing the research on gender in corporate board processes, Huse and Solberg (2006)’s interviews with eight WOCBs reveal the importance of nurturing contacts, preparing for meetings, creating alliances as well as their observations about presence of power games and unequal decision-making in the process. Huse (2008) develops a conceptual framework that describes how board leadership, structures, development activities, culture and levels of openness mediate the influence of women directors on task performance. Furthermore, Huse (2008) 9