Sex, Power, and Corporate Governance

On December 1, the Nasdaq Stock Market asked the Securities and Exchange Commission (SEC) for authority to adopt new listing rules aimed at increasing board gender and racial diversity. If approved, Nasdaq-listed companies will be required to disclose their board diversity data and have, or explain why they don’t have, one female and one underrepresented minority board member. Nasdaq’s The request is the latest milestone on the business and investment community’s journey to transforming corporate culture by uprooting long-established power imbalances.

As I map out in my recent article, “Sex, Power, and Corporate Governance,” the #MeToo movement first prompted key stakeholders in the business and investment community to draw an explicit link from a male-dominated corporate culture to business risk. In the wake of #MeToo, key stakeholders began to zero in on corporate culture. For example, one of the largest asset managers in the world, State Street, declared corporate culture its chief engagement priority. Several shareholders filed proposals that were anchored in cultural risk. Trillium Asset Managers, for example, filed a proposal with Nike and argued that its male-dominated leadership creates a “culture of complicity” and hence a business risk. Prominent law firms like Covington & Burling created practice areas devoted to cultural audits. For the first time, shareholder plaintiffs began suing boards for their failure to oversee culture and alleging that a “boys’ club culture” and “brogrammer culture” posed financial risks.

In the article, I analyze how a growing community of influential corporate actors were asking for reforms that, in one way or another, redistributed power from men to women. This is, of course, not an easy task. After all, corporate America is teeming with power imbalances, and they start at the very top, with the composition of the board of directors, the CEO, and executive management. These imbalances are reinforced through unequal pay and promotion practices and pay secrecy policies. In response to stakeholder pressure, however, seismic changes have begun to occur. The first change, which is the easiest to observe, is in who holds power as boards are becoming more gender diverse. But the renegotiation of power goes far beyond board gender diversity. The way that power is negotiated between the CEO and the board is also shifting. For example, boards are tying diversity metrics to executive compensation, and board compensation committees are amending their charters to explicitly address their oversight of corporate culture, which is tethered to diversity and inclusion. Change is underway in the context of pay equity as well, with more companies conducting equal pay audits and addressing the gender pay gap. Finally, either voluntarily or through regulation, an increasing number of companies are abandoning mandatory arbitration and NDAs. These changes, taken together, signal a shift to an era of corporate governance that is rooted in gender equity.

While the connection between business risk and a lack of diversity may be apparent, and perhaps even painfully obvious to women and underrepresented minorities, its recognition marked a clear departure from what I describe as “the era of compliance” in which companies sought to address cultural risk by investing in diversity and inclusion or sexual harassment training programs. Social scientists were dubious of these efforts from the start and have long warned that, to transform corporate culture, we must address its root cause: power imbalances. The #MeToo movement ushered in a focus on addressing power between men and women. And the recent commitment to end systemic racial injustice has extended a similar strategy of redistributing power to underrepresented groups.

To be sure, the “old boys’ club” is still thriving in corporate America. This is evidenced by the fact that more than 75 percent of the Nasdaq-listed companies do not meet its proposed requirements. Still, the business and investment community’s newfound and increasing focus on addressing these power imbalances is supported by social science and offers the unique promise of meaningfully transforming corporate culture.

This post comes to us from Amelia Miazad, a member of the business law faculty at the University of California, Berkeley School of Law and the founding director of the Business in Society Institute. It is based on her recent article, “Sex, Power, and Corporate Governance,” available here.

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