When Bill Rolls Off: Continuity and Change on Corporate Boards

Peter Cziraki is the Assistant Professor of Finance at Texas A&M University and Adriana Robertson is the Donald N. Pritzker Professor of Business Law at the University of Chicago Law School. This post is based on their recent paper. Related research from the Program on Corporate Governance includes Politics and Gender in the Executive Suite (discussed on the Forum here) by Alma Cohen, Moshe Hazan and David Weiss; Will Nasdaq’s Diversity Rules Harm Investors? (discussed on the Forum here) by Jesse M. Fried; and Duty and Diversity (discussed on the Forum here) by Chris Brummer and Leo E. Strine Jr.

Over the last decade, there has been a major push to diversify corporate boards. For example, the proportion of women directors of firms in the S&P 500 index rose from around 10% in 2000 to over 30% in 2023. It is also well-established that larger firms have more women directors than smaller ones.We study where these women directors came from and how they’ve been absorbed in our paper, When Bill Rolls Off: Continuity and Change on Corporate Boards.

First, we look at candidates with board experience. Starting towards the end of the 2010s, we find that women with board experience see a jump in their subsequent board positions relative to their similarly situated male colleagues. For example, women with experience at small-cap companies in 2020 obtained, on average, 0.19 additional board seats (or, alternatively, a 19% greater chance of an additional board seat) in 2022 compared to their male colleagues—equivalent to one sixth of a standard deviation. This is consistent with the idea that many companies began to more aggressively seek out female candidates in that period. We find estimates of similar magnitudes for women with experience at mid- and large-cap companies (again, comparing the number of board seats they have two years later to their similarly situated male colleagues).

Women directors are also more likely to be “newcomers,” i.e., to have no previous board experience. Outside the very largest companies, we find that the percentage of newcomers is substantially higher among women than men. While this is not an entirely new phenomenon, it is particularly pronounced in the last few years, and particularly at smaller companies. Hence, the increase in women directors is coming both through additional positions for existing women directors of public companies and through the addition of women from outside that pool.

The combined effect of these trends is that women directors tend to hold more simultaneous board seats than their male colleagues. Specifically, conditional on being a director, women are now modestly more likely to hold a relatively large number of board seats than their male colleagues and are less likely than their colleagues to hold just one board seat. For example, among large-cap companies (ranked 51 to 500 by market capitalization) women were more likely to hold 1 board seat then men in 1990 and 2000. However, this pattern this had reversed by 2020 and 2022.

We then turn to the question of how these women have been absorbed by boards. A company can add women to its board in two ways: by expanding the board, or by replacing existing male directors with women. While we find evidence of both, the increase in board size is transitory. Using an event study framework, we find that about a third of the time, the addition of a woman director is associated with an increase in board size by one director. This increase, however, tends to revert the following year. This is consistent with the idea that a company that identifies a suitable woman candidate might add her to the board quickly and then decline to replace a male director when he departs a year later. It is also consistent with a broader phenomenon among corporate boards. When we break companies into four groups by size (mega-, large-, mid-, and small-cap), we find that while larger companies tend to have larger boards, the average size of board within these size groups has remained virtually unchanged over the past 15 years.

Finally, we examine how firms replace existing male directors with women. Replacement can occur either through natural attrition/board refreshment or by the removal of men who would otherwise have stayed on as directors. If the latter were happening systematically, the average tenure of departing male directors should decline when women directors are added to a board. We find no evidence of this (again, using an event study framework), suggesting that the norm is that directors are replaced through natural attrition.

Our results on board size reflect a trade-off in board construction. While a larger board might have the benefit of more diversity (of both biography and expertise), it may also come with costs. Larger boards may be more difficult to coordinate, and boardroom discussions might become unwieldy. One implication of our results is that contrary to the suggestion of some commentators, boards are unlikely to continue to expand indefinitely. Our findings on the replacement of male directors suggest that companies value their relationships with current directors and are unlikely to seek to remove them prematurely to make room for new candidates. Hence, our work points to a second reason why efforts to change board composition are likely to be gradual: not only must companies identify new candidates, they may also need to wait for a seat to open up (or be about to open up) through a retirement

The full paper is available for download here.

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