Recent research highlighted how much better more diverse organizations performed relative to their more homogenous peers. Despite this logical reason for greater gender diversity, especially at the board level, performance still lags worryingly behind public sentiment.
New research from the University of Delaware highlights the glass ceiling that still prevents women from reaching the top boardroom positions in countries around the world. The study finds that even when companies include women and/or racial minorities, these people are less likely to have any of the key leadership positions on the board, with this so even if they have stronger qualifications than their white male peers.
“While specialized skills such as prior leadership or finance experience increase the likelihood of appointment, that likelihood is reduced for diverse directors,” the researchers say.
Struggling to diversify
While the diversity of boards has risen in the past 20 years, the paper highlights how women and minority directors have still struggled to obtain the loftiest positions, such as chairman of the board, lead director, or as chairman of one of the four major committees (audit, compensation, governance and nominating).
The researchers examined a sample of nearly 20,000 directors from the boards of 2,254 US firms from 2006 to 2017. The assessment found that diverse directors typically had greater credentials and experience from both outside and inside the firm than their white male counterparts. Despite this, they were less likely to be appointed to the key board positions.
The team then dived further into the data to explore the specifics of how experience influenced matters. They found that while previous chairman/lead director experience meant that white males were 10.5% more likely to be appointed to such roles, for women or minority people, the chances were only improved by 6.1%.
“Our paper raises important questions about board inequity and lends justification to several recent public concerns on the issue,” the researchers say. “While most concerns raised by advocates have focused primarily on board composition, we point to evidence of inequity even after these directors have been elected to the board.”
Breaking the glass ceiling
Obviously qualifications do not explain the discrepancy in positions obtained, but the researchers put forward a few possibilities. For instance, diverse directors may actively choose to serve on more boards rather than commit resources to serving in leadership roles on fewer boards. They may also choose not to pursue such roles, or even be less effective in them.
These possibilities were examined, with no real evidence existing to support any of them. For instance, they found that boards with diverse directors in key positions tended to perform better, suggesting that there was no quality issue involved in the lack of appropriate representation. Indeed, diverse boards also secured better support from shareholders, which highlights the satisfaction among these key stakeholders.
“In sum, our evidence points to the conclusions that diverse directors possess at least the same professional skills as their peers and, when serving in leadership roles, diverse directors perform their board duties at least as well as their non-diverse counterparts,” the researchers say. “Moreover, we found no evidence to suggest that diverse directors avoid serving in board leadership roles. Thus, we posit that biases may at least partially explain the leadership gap we observed for diverse directors.”
The researchers found that the best approach to mitigate this was to specifically adopt a policy whereby they consider race and gender in all board nominations. Similarly, including diverse directors on the nominating committee was also effective.
