Research Findings

It takes more than a ‘body count’ to make diversity matter on corporate boards

December 21, 2023

Corporate boards shape strategy and decision-making, rendering their composition highly consequential. Such boards have been, and still are, predominantly composed of individuals from similar demographic backgrounds – notably white men. This is an issue, as homogeneity is known to lead to groupthink, and suggests that some needed talent is excluded from the board room.

Calls for diversity, notably gender diversity, grow louder, and some countries have legal targets or quotas. Corporate boards, not least in large, publicly-traded firms in the Global North where power and money concentrate, are thus in the hot seat. However, research findings are mixed when it comes to the outcomes of having more diversity on boards.

In a recent study of corporate board diversity, our starting rationale was that simply adding more ‘diverse directors’ to the mix wouldn’t necessarily translate into them having influence – and indeed, we found that increasing the ‘diversity count’ by adding women or foreign directors doesn’t inherently reshape the power dynamics in the corporate elite.

In this study, we adopt a network perspective to understand why some directors have more influence than others. Studying the Swiss corporate board landscape, we focus on how gender and nationality intersect with the directors’ human and social capital. Overall, our study highlights the need for a more nuanced understanding of diversity on corporate boards and its impact.

Digging deeper into board diversity

To answer calls for diversity, companies may adopt a straightforward strategy to document their progress on diversity and inclusion in the boardroom: set targets or quotas to increase what we’ll call the ‘diversity count’ and communicate on how many of their directors are non-male, non-white, or otherwise diverging from typical profiles.

While an important first step, this is far from a comprehensive solution. Indeed, there is no systematic evidence that better representation is synonymous with increased influence on decision-making or interorganizational influence and, ultimately, impact on a range of performance indicators, including but not limited to financial ones.

In our research article in Work, Employment and Society, we delved into how gender and nationality play a role in how influential corporate directors are. We specifically focused our study on Switzerland and analyzed ties between 375 directors of the country’s largest firms over a period of 10 years. Unsurprisingly, 90% of the directors were male while 52% of them were foreign nationals – which is quite uncommon from an international perspective.

We were primarily driven to answer questions such as: Do male gender and Swiss nationality play a role in boosting network centrality, thus giving male or local directors more influence and power? Do factors such as education and tenure, known as human capital, moderate the effect of a director’s gender and nationality on their network centrality? Lastly, does directors’ social capital, with regard to connections to other directors through current or previous board appointments, employment, or place of education, moderate these effects?

We chose to explore these questions due to the thriving discussion and research around the roles of gender, nationality, and diversity within boards and top management teams. We aimed to contribute to these discussions and provide a more substantial understanding of the association between a director’s demographics, their social or human capital, and their relative network centrality.

Using network analysis to understand board diversity

Social Network Analysis (SNA) is a methodological approach that examines relationships and connections within a network to gain insights into their structure and implications. Originating in sociology and graph theory, SNA uses nodes and edges depicting actors or entities and their relationships, respectively.

SNA provides a toolkit to map and explore diversity-related dimensions as networks of relations, offering a complementary approach to traditional methods of diversity research. SNA can reveal whether women and other underrepresented groups are integrated into the central network or peripheral.

Through constructs such as centrality, clustering, and homophily, SNA can expose the dynamics of underrepresentation, power distribution, and marginalization. This method thus enabled us to have a broader and more nuanced understanding of diversity on corporate boards.

The importance of being ‘local’… and male

Our findings were significant and revealing, and showed that networks matter: Swiss directors wielded a higher network centrality, and thus influence, than their foreign counterparts. Also, men with higher levels of ‘local’ social capital in the form of ties to Swiss firms have more influence than the women in our sample. This implies that being local, being in the ‘old boys’ network’, has an instrumental impact on a director’s influence and thus power in the corporate elite.

One aspect that stood out prominently in terms of explaining the higher influence of some directors was the size of boards. This can be explained by the fact that working in larger firms presented individuals with better opportunities to network and meet people who would likely become directors in other top firms.

Moreover, education and board experience, which constitute human capital, had different influences depending on a director’s nationality: more experienced Swiss directors emerged as more centrally positioned and influential than foreign directors with similar experiences.

How to make diversity matter more on boards

Our study holds significant implications, primarily underscoring that the same amount of experience or qualifications doesn’t benefit all directors equally. Moreover, it highlights that increasing board diversity – notably gender diversity – does not necessarily lead to ‘non-traditional’ directors achieving levels of influence similar to those enjoyed by more ‘typical’ directors. This has considerable implications for policies such as quota laws and other labor market interventions designed to increase diversity on boards, suggesting that these alone may not be enough.

Limitations of the study include its applicability to countries with similar characteristics as Switzerland, such as Luxembourg, Hong Kong, Korea, or the Netherlands, so that insights from other contexts would be needed to further generalize our findings. We also see value in broadening the research scope geographically to include multi-country studies or time-based comparisons in countries that have implemented targets or quotas for board diversity.

Our findings demonstrate the importance of understanding how influence is exerted in director networks, and suggest the need for future work to investigating other factors, such as local embeddedness and recruitment modes. The role of informal networks, which are often influenced by gender or class, should also be considered, as they may either amplify or decrease the effects detected in our research. In all, we call for a comprehensive and diversified approach to reshaping the corporate elite.

Read more

Florence Villesèche & Evis Sinani. “From Presence to Influence: Gender, Nationality and Network Centrality of Corporate Directors” in Work, Employment and Society 2023.

For a free, pre‐publication version of the article, click here.

image: via pixabay (CC0)

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