Substantive Gender Diversity in Boardrooms

Yaron Nili is Assistant Professor at University of Wisconsin Law School. This post is based on his recent article, forthcoming in the Indiana Law Journal.

A year ago, State Street Advisors, one of the largest institutional investors in the country, commissioned the “Fearless Girl” statue as a symbol of the increased attention by investors and the public to the lack of gender diversity within corporate boardrooms in the U.S. In the year since the “Fearless Girl” appeared on Wall Street the push for gender diversity in boardroom has gained traction within the investor community. State Street voted against 400 corporate boards that failed to nominate female directors, the New York City Comptroller and the New York City Pension Funds launched their own initiative focusing on board diversity disclosure and ISS and Glass Lewis, the two largest and most influential proxy advisory firms have announced a new focus on gender diversity. Finally, in early February Blackrock updated its voting guidelines to state that it now expects to see at least two female directors on every public company’s board. Indeed, while in 2017 women still only comprised less than 17% of corporate boards, with over 600 boards still having no female directors at all, these actions by investors have made a difference. For the first time ever, women and minorities accounted for half of the 397 newest independent directors at S&P 500 companies.

Yet, while the efforts of investors to increase the representation of women on corporate boards are important, they may be falling short of their intended result. This is because too much of the time, the conversation about gender diversity on boards stops at the idea of hitting a “magic number” of gender representation– sometimes as few as a single woman. The focus on numbers ignores a big piece of the puzzle: do women on boards get an equal chance to make an impact.

As I more fully develop in my article, Beyond the Numbers: Ensuring Substantive Gender Diversity in Boardrooms, meaningful gender diversity extends beyond the number of women on boards. The actual role and clout that female directors have within the boardroom is equally important to ensure that women are afforded meaningful pathways to contribute. This is what I term as the “substantive gender diversity” element of boardrooms.

Importantly, whether advocating for gender diversity as part of a social cause agenda or because of the new data that shows that gender diversity improves the board’s work and therefore company performance, substantive equality matters. Without it, we would fall short of achieving either of these goals. Clearly, if the motivation for better gender diversity on boards is rooted in the anti-discrimination notion, then ensuring equal treatment within the boardroom is as important a goal as ensuring that women get better representation on boards. Similarly, acknowledging the instrumental value that gender diversity brings to the board must necessarily also lead to an examination of the ways through which women are able to contribute to the board’s work.

My research provides the first comprehensive analytical and empirical account of substantive gender diversity on corporate boards and finds widespread, systematic differences between the roles of men and women on U.S. boards. These differences are apparent across public companies regardless of their size or industry and the disparity cannot be explained away by the current ratio of women to men.

Specifically, the article makes several important contributions to the current discourse regarding gender diversity on corporate boards:

First, much of the current research on board diversity has focused on the low number of female directors. This article adds an important new layer of research, arguing that there is a fundamental difference between solely meeting diversity “quotas” and achieving “substantive” diversity in the boardroom. As the article explains, substantive gender diversity is at the core of both the social cause and the business case for gender diversity on boards. Therefore, investors and advocates of gender diversity need to look beyond the ratio of female directors in the boardroom and take into account the roles and functions that these directors serve once elected to the board.

Second, the article is the first to provide detailed empirical evidence regarding gender disparities within the boardroom. Examining the S&P 1500 companies between 2007-2015, the article finds significant differences between the roles of male and female directors. For instance, I find that women have shorter tenures compared to men. In total, men had an average tenure of between 1.99 (22%) and 2.64 (27%) years longer than women. This overall disparity is more than a byproduct of recent board appointments for more women as it has persisted over time, across measures of industry and market size

Figure 1: Gap in Average Tenure of Male vs. Female Board Members

A significant disparity between female and male directors is also found in their leadership roles. Women serving as chairwoman were only one percent out of the entire female director sample, while men were six times more likely to serve as chairman, standing at 6.5 percent of the male director sample. Similar disparities exist in the lead independent director role, as women serving as lead independent directors were only 3.6 percent out of the entire female director sample, while men were more than two times more likely to serve as lead directors, standing at 7.4 percent of the male sample. Women are also less likely to serve as chairs of key board committees.

Importantly, the gap in leadership roles is not merely a function of the tenure disparity between the genders. According to the results displayed in Table 1, the data shows consistent gaps in leadership likelihood even after controlling for tenure. In each of the four tenure quartiles women lag men in their likelihood to take the role of chair or lead independent director.

Leadership Role Likelihood (as a percentage of the respective sample)

0 – 4 Years of Tenure 4 – 8 Years of Tenure 8 – 12 Years of Tenure 12 + Years of Tenure
Female Male Female Male
0.63% 2.12% 0.75% 2.19%
0.88% 2.80% 0.82% 3.09%
0.99% 2.43% 1.16% 2.93%
1.00% 2.30% 0.94% 3.36%
0.49% 0.91% 0.76% 2.33%
0.47% 0.90% 0.63% 2.18%
0.49% 0.91% 0.69% 2.20%
0.37% 1.02% 0.56% 2.16%
0.35% 1.28% 0.62% 1.84%

Table 1: Leadership Roles and Tenure

Important differences are also evident in the intra-board assignments of directors, both in the number and quality of committee assignments. Finally, the data also reflect some movement in the right direction, in some of the metrics examined. The ratio of women on boards is on the rise. There has been a positive movement in the ratio of women as committee chairs, signaling an overall positive trend, and women seem to gain access to all of the important board committees, albeit in lesser numbers on the key audit committee.

Third, the article provides a detailed discussion of the policy implications stemming from the findings. The article shows that companies provide very little diversity information to their investors, and therefore the article underscores the need for greater attention to substantive gender diversity as well as a need to rethink the current disclosure regime.

To begin, investors advocating for better gender diversity should expect companies to do more than just add an additional female to the board. For example, investors should scrutinize companies in which women’s tenure is consistently low. Similarly, if the presence of a woman in a leadership role can influence the willingness of women to stay longer, then investors must account for that in their valuation of the company’s gender diversity. If the fact that women are stretched too thin prevents them from taking on leadership roles, then investors should consider asking companies to limit the committee work that each director can do.

Companies themselves must also take a proactive approach. Companies must examine their corporate culture, and make sure that women are not stretched too thin in their committee work, which could keep them from taking more active leadership roles. Companies may also want to consider term limits for leadership roles, allowing more women on the board to get an opportunity to serve in these roles.

Finally, public attention and regulatory emphasis should also take account of the substantive measures of board diversity. A focus on substantive measures of board diversity in addition to quantitative data on companies’ current and historic gender diversity ratios would accomplish the core of gender diversity initiatives by asking a simple, yet under-addressed, question: how do corporate policies and corporate governance truly advance gender diversity?

The recent focus on board gender equity has started to move the needle, but gender equity is still sorely missing from most public companies in the U.S. The substantive and leadership gaps between the genders on public companies’ boards must shift gender diversity advocates away from a micro-focus on numbers. The past year proved that change is possible. Now, investors and regulators must turn their attention beyond the numbers to the systematic disparities between women and men on boards. If women are not moving into positions of power on boards, or are otherwise treated differently on boards, we need to know why, and we need to understand the cost.

The complete article is available here.

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