A debate in the European Parliament is burning up: EU-based, large companies might be obliged by law to reach a target of 40% women in their executive boards. This comes as a long standing effort to increase the number of women in business, and by and large, the number of active women in business. Surprisingly, within the European Union, the number of women in high management positions varies greatly.
The Economist on 23rd November 2013 indicates that in 2009, in the Nederlands only 13-14% of boards included women, and this increased slightly to 20% in 2012. Norway, by contrast, had 38% of boards with women on their flanks in 2009 and had already reached the target of 40% by 2012. Yet how does a political decision reflect in the day-to-day business and interactions?
The arguments for and against board gender diversity seem equally valid. On the one hand, diverse boards, be it in terms of cultural, ethnical or a gender, may produce more opinions, more critical questions but, on the other side, these decision can be slower (Hambrick, Cho, & Chen,1996). Yet, it is precisely this in-depth analysis that leads to a higher quality of decisions, and in the long term, to creativity and innovation. Heterogeneous boards understand better the market place (Carter, Smimkins & Simpson, 2003) . But how to translate all this into firm performance?
Nielsen & Huse (2010) showed on a sample of 201 Norwegian firms that the ratio of women is positively associated with board strategic control. In a similar line, Smith, Smith and Verner (2005) investigated what effect board composition had on a sample of 2500 large Danish firms in between 1993-2001. Their results indicated that indeed there was a positive relationship between firm performance, in terms of gross value added, and female CEOs. However, this relationship was mainly related to female managers with a university degree. Their counterparts female CEOs without a university degree had a much smaller or even insignificant effect on firm performance.
The role and number of women in board position increase in importance and number, whether imposed by quotas at national or European level. While it may be a socially desirable development, the change may come with its own set of challenges and frictions. Such a change, under certain circumstances and with its own set of limitations, can be in the best interest of both women and the business world.
Carter, D.A., B.J. Simkins and W.G. Simpson (2003), Corporate Governance, Board Diversity, and Firm Value, The Financial Review, vol 38, 33-53.
Hambrick, D.C., Cho, T.S., & Chen, M.J. (1996), The influence of top management team heterogeneity on firms’ competitive moves, Administrative Science Quarterly, vol. 41, 659-684.
Nielsen, S.& Huse, M.(2010). The contribution of Women on Boards of Directors: Going beyond the Surface. Corporate Governance: An International Review,18 (2): 136-148
Smith, N., Smith, V., & Verner, M. 2005. Do women in top management affect firm performance? A panel study of 25000 Danish Firms. Working Paper.