Gender diversity in boards

Reporter: Guo Yaosen

1. Gender diversity in boards

Countries Reforms about gender diversity

British All companies should voluntarily reserve a minimum of 25% of their board seats for female directors.

Sweden Gender diversity is a legal requirement.

Norway Mandatory Gender quota (40% for female).

France It planned to promote gender quota in companies’ boards before 2016.

Belgium Its company law has instituted a regulation about gender diversity.

Australia All companies should disclose their targets about gender diversity.

1. Gender diversity in boards

Question: Why the gender diversity in boards is so important?

1. Gender diversity in boards

Reason 1: Helps to mitigate the agency problem

Shareholders(Principal)

Board (Agent)

Agency problem

Devices:(1) Fiduciary duty(2) Executive compensation

1. Gender diversity in boards

A. Women are less likely to have attendance problems B. Female directors are tougher monitors

Fiduciary duty

Executive compensation

Gender-diverse boards win more trusts from companies

Shareholders(Principal)

Board (Agent)

(1) Increase a firm’s innovation intensity

(2) Improve a firm’s ability to enter new markets

Reason 2: Improves the quality of decision-making

a signal of good corporate governance

Reason 3: Become an Incentive

1. Gender diversity in boards

All listed companies must abide by a 40% gender quota for female directors or face dissolution.

2. Gender quota in boards

(1) Mandatory gender quota in Norway’s corporation

2. Gender quota in boards

Question:Did this mandatory gender quota have effects

on corporate performance?

Were similar between firms affected and unaffected by the gender quota

Revenues Non-labor costs

Mergers and acquisitions Initiations of joint ventures

2. Gender quota in boards

A. Most financial data

Relative labor costs

Fewer layoffs

2. Gender quota in boards

B. Labor Costs

Reason

Female directors are more long-term oriented and altruistic.

Conclusion:

Gender quotas only lead to changes in human resources management.

2. Gender quota in boards

2. Gender quota in boards

Question:Why the gender quota can not improve the corporate

performance?

2. Gender quota in boards

Potential reasons:

Gender quota may lower the average competence of directors.

Reason 1: More nominal directors

2. Gender quota in boards

Reason 2: More additional costs

6 male directorsAfter the gender quota

6 male directors and 5 female

directorsFor example:

If there are six male directors in a corporation’s boardroom, and none of them want to leave. In this case, this company have to add another five female directors for complying with the mandatory gender quota and meanwhile avoiding deadlock. These five female directors are new to the board. At the same time, the total number of board seats increases.

2. Gender quota in boards

Reason 2: More additional costs

Costs for developing trust Costs for coordination of conflicts

More and more female directors who have different personalities, backgrounds, perspectives enter the board. In this case, the gender quota in boards may lead to more conflicts, and the company have to spend additional costs for developing trust between men and women, and more importantly, for coordination of conflicts. So the gender quota lowers the efficiency of board operation, and has no any positive effects on corporate performance.

2. Gender quota in boards

Conclusion:

The mandatory proportion (40%)for female directors of gender quota is unreasonable, because it magnifies the disadvantages of gender diversity. As a result, this gender quota can not improve the corporate performance.

Thank you!