What influence does gender diversity at board level have on strategic change in firms?

Strategic change is crucial for a company to adapt to threats and opportunities. Boards have a duty to safeguard the interests of shareholders and stakeholders. As part of their role, they are expected to question the status quo and advise when strategic change is needed.  

Our research, which uses data from Fortune 500 firms, looks at how gender diversity at board level has an effect on strategic change in firms. Previous research argues that gender diversity in boards ought to benefit the company since men and women bring different skills, experiences and resources to the firm. 

Gender status difference 

However, we don’t exist in a vacuum. Gender is an institutionalised system of social beliefs and corporate leadership has been a non-level playing field. Society has expectations regarding men and women being able to execute specific roles effectively and as such, social bias has been keeping women from leadership roles. 

Gender stereotypes have projected men as being better equipped for leadership roles. As a result of this, men on boards belong to the higher-status gender category, having historically been the sole gender category in the directorship role. The higher status confirms the belief that for effective directorship, the stereotypically male characteristics of being assertive, competitive and dominant are needed, whereas female characteristics are stereotypically perceived as being caring, nurturing and sympathetic.   

Although female directors can try to counter bias by exhibiting stereotypical male traits, studies indicate they are then negatively evaluated and penalised for violating their gender stereotype. 

Gender status difference between male and female directors may keep women from having influence on strategy. Previous research has shown that regardless of the singular experiences, style, temperament and value orientation female directors might bring to the board, the perception of women directors as non-equal board members can significantly reduce the potential for women to contribute to board decision-making. 

Thus, on average, female directors will be less influential than male directors on gender-diverse boards. Because of an increase in the proportion of female directors, there will be a decrease in the number of male directors on that board. The enactment of stereotypes and presence of gender bias will result in board discussions and decisions being shaped primarily by a small but dominant ‘boys’ club’.  

The dominant influence of a small group of male directors can be fateful – decisions are likely to be steered by a smaller pool of people and views, rendering strategy change less probable. With fewer people and therefore smaller diversity of thoughts to guide the board’s agenda and decisions, the status quo is less likely to be questioned (and therefore less likely to implement strategic change).  

Previous research shows that with fewer directors, boards are less active in promoting strategic change. Additionally, with a smaller group of male directors in control, there is likely to be greater attachment to the strategy in place because of reasons of legacy, past investments and CEO compensation. In contrast, where there is less or no board gender diversity, one can expect influence on board discussions and decisions to be distributed across a larger group of male directors. 

The influence of the chair’s gender 

The influence of board gender diversity on strategic change is likely to be moderated by the board chair’s gender. If the board chair is a woman, gender status difference and bias is less likely. The board chair’s role is different from that of a board director’s role and carries higher status. The board chair has significant authority; they set the agenda and tone for board meetings and discussions.  

A woman as chair is likely to make a statement, suggesting a view in which gender categories are not relevant for board directorship. Disarming the stereotype that men are more suited for board directorship, a female chairperson is likely to increase the legitimacy of all female directors on the board (whereas a male chairperson would affirm the stereotype). 

Moreover, a female chair offers a role model for other female directors on boards. 

If a board chair is a woman, gender status equality and perceived legitimacy of female directors will mean that they have as much opportunity to influence strategy as male directors.  

On a female-chaired board that is more gender diverse, the say and voice of multiple female directors will result in strategy being informed by a greater variety of perspectives and understandings. With a female chair, the agenda and decisions of the board are less likely to be controlled by a small clique of male directors. This means there will be greater diversity of thought for making sense of and interpreting the firm’s strategic options. As issues, events, threats and opportunities surface, the likelihood of the status quo being questioned and strategic change being made, can be expected to be greater. 

 

Our study helps reconcile the seemingly conflicting results of some of the earlier research into women on boards. For example, on the one hand, research shows female directors are more risk-loving, however, research also shows that when there are more female directors there is a decline in change, acquisition intensity and performance. When considering gender-linked prejudice on boards, female directors may be more risk-loving, but this will not be reflected in a firm’s strategy if female directors do not have the same influence on strategy as the male directors do. 

Implications for policy and companies 

The results of this study are of interest in relation to quota-based legislative regimes seeking to increase the number of female directors on boards. Quotas are motivated by a desire to promote social justice, with the goal of social equality, through the removal of barriers to women’s participation on boards. Our results suggest that for firm-level benefits, it is vital to also pay attention to the board positions held by female directors.  

In addition to numerical goals (e.g. the regulatory aim in European Union countries is often 40% female representation on boards) public policy debate can consider the inclusion of a ‘positional’ emphasis in regulatory regimes, which obliges the selection of women to key board positions.  

Companies should review whether gender status equality prevails in the boardroom. The omnipresent ordinariness of social beliefs and norms may make it hard to spot that gender status difference and bias exist. Female directors’ inclusion in and chairpersonship of important board committees may help counter status difference by signalling a mindset and company culture that regards gender as an irrelevant category for leadership roles.  

Gender status equality could be nurtured by disassociating directorship roles from a masculine stereotype of leadership corresponding to the male gender stereotype. Using gender-neutral language for describing directorship roles may also help. 

This blog post is based on the article – “In the Shadow of Social Stereotypes: Gender diversity on corporate boards, board chair’s gender and strategic change” – published in Organization Studies, August 2020.  

Jatinder S. Sidhu, University of Leeds; Ying Feng Xi’an Jiaotong, Liverpool University, China Henk W. Volberda, University of Amsterdam, Netherlands; Frans A.J. Van Den Bosch, Erasmus University Rotterdam, Netherlands.