Appointing women to the governance committees that appoint CEOs and set pay and bonuses is what makes the real difference to company performance rather than just having more women on the board, according to a new research study.
Research by Colin Green and Swarnodeep Homroy from Lancaster University, to be presented at the Royal Economic Society’s annual conference in Brighton this month, follows the 100 largest publicly listed European firms over the period 2006-12. More than half of the firms had more than one female director while 10% of boards were gender-balanced.
The researchers found that a percentage point increase in female representation on nomination and remuneration committees increased a firm’s value by almost 5%. By contrast, the same increase in representation on boards only increased value by 1%. They say: “Simply put, allowing talented women to have a say in how the company is run does far more good than just appointing them in order to meet regulations”.
They add: “It is the deep integration of female directors into the mechanism of governance that is the key challenge for modern corporations. Without bringing them into the decision-making process, new female director appointments designed to meet compliance targets risk drifting once more into the realm of token symbolism.”
The researchers say that, while regulatory and institutional pressures can lead to appointments of female directors on the board, they do not necessarily ensure the active participation of appointed female directors in the governance mechanism.
They add that existing evidence on the effect of gender diversity tends to focus on the effect of appointing the first female director. However, the way a board influences companies is through committees which articulate the goals and strategic plans of the organisation in a specific area and serve as a source of specialised expertise. Women, however, are more likely to be appointed to monitoring-related committees, like the audit committee, but less likely to be appointed to nomination and remuneration committees, where new CEOs are appointed and where pay and bonuses are set. The researchers say this might partially explain the persistence of a gender pay gap at executive level.