Last year the European Union began advocating for a quota system that requires companies to appoint women to at least 40% of their board seats. According to the EU commissioner for justice and gender equality, Vĕra Jourová, advancing women on boards is “good for business.”
Many countries in Europe—including Norway, Belgium, France, Italy, the Netherlands and Germany—have already imposed national quotas to mixed effect. In the U.S., where women fill only about 20% of corporate director roles, there is little talk of quotas even among advocacy groups. Yet firms face growing pressure to appoint more women to the boards from policy makers, women’s rights advocates and even large investors.
There are many reasons to advocate for greater diversity on corporate boards. Many investors believe that women improve performance, enhance a firm’s reputation and contribute to creativity and innovation.
Yet little is known about the impact of gender diversity on the board on corporate policy and practice—especially when it comes to corporate social responsibility.
Corporate social responsibility (CSR) refers to a company’s responsiveness to the needs of diverse stakeholders, including workers, communities and the environments where they operate. There is evidence that women leaders may be stronger advocates of corporate social responsibility. For example, in a recent study we found that women directors are associated with a wide range of LGBT inclusive policies and practices. Other studies have found that women executives are associated with stronger environmental records and greater equity.
Does gender diversity on the board of directors change how companies do business?
But under what conditions do women directors influence these outcomes? Organizational demography suggests two possible conditions that may enable or impede women directors’ ability to advance policies consistent with CSR.
Token theory suggests that women’s efficacy will be constrained by their numerical representation. When women serve in token or solo roles, they face constraints—including scrutiny, performance pressures and negative evaluation bias—that limit their ability to fully contribute to their organizations.
These challenges can be overcome, however, when women’s numerical representation reaches a critical mass. In more gender balanced settings, women are more likely to benefit from the trust and support of the entire group and are better able to influence group outcomes.
Taken together these theories suggest that when women reach a critical mass on the board—typically defined as the presence of three or more women directors—then they will be better equipped to advance CSR in their companies.
We tested this prediction by analyzing the impact of board gender composition on company policies and practices. We focused our analysis on companies in the Fortune 500 over a ten-year period, from 2001 to 2010. These data allowed us to track the impact of the gender composition of the board on various firm outcomes related to CSR.
Yes, number matters
Our findings confirm and challenge conventional wisdom and theory about the impact of women in the boardroom.
First, we find that even a single woman director is associated with a significant improvement of a firm’s record in key areas relevant to CSR including community engagement, governance and environmental sustainability. Compared to all-male boards, boards with even one woman have stronger records in these areas.
Second, when a critical mass of women serve on the board, the company’s record improves in all areas related to CSR, including product development. While a single woman can move her company in the right direction, multiple women are more effective when it comes to developing socially responsible products.
These findings underscore the importance of gender diversity on boards. All-male boards underperform more diverse boards in every area of CSR. Women’s leadership benefits companies in measureable ways that matter.
It’s also more than number
Our findings also suggest that in some contexts women’s influence matters just as much or more than their numerical representation.
Extant research suggests that women selected for board membership tend to have strong reputations, are well known to executives in the focal firm and tend to exercise disproportionate influence over board outcomes. In other words, women selected for directorships are exceptional and may be more influential than their male counterparts.
This influence likely enables women directors to overcome the exclusion and scrutiny token or solo women confront in other settings in order to advance CSR-relevant practices.
In the boardroom, women’s influence may compensate for their small numbers.
This does not mean boards should stop pursuing gender diversity within the board. Indeed, our findings suggest that a critical mass of women directors is associated with strong CSR records. While solo and token women may be able to influence key areas of practice, a greater representation of women on the board is more impactful across a broader range of outcomes.
The message to companies is clear: women directors advance corporate social responsibility and the more women who serve on your board, the stronger your policies will be.