Over the last two decades, firms have been under growing pressure from investors, business leaders, and activists to increase female and minority representation on boards of directors. First adopted by Norway in 2003, regulations relating to boardroom gender diversity have spread worldwide. Today, more than 25 countries have mandatory quotas, voluntary quotas, or “comply or explain” disclosure requirements. However, in the U.S., while some state legislatures have debated or passed new requirements, there are no nationwide boardroom gender diversity regulations. In this voluntary environment, U.S. firms have made progress towards gender-balanced boards, with firms in the Russell 3000 increasing female directorships from 10 percent in 2008 to 28 percent in 2022. To achieve this, the proportion of new directors who are female has increased quickly, straining recruiting efforts for female candidates with the desired background and experience. As the competition grows for qualified female candidates, it is important to understand what factors are associated with a firm’s ability to bring a new female director to the board. In our new study, we investigate director appointments from 2004 through 2018 and examine the influence of boards, executives, and stakeholders on a firm’s ability to attract female board members.
We consider three theoretical perspectives commonly used in corporate governance research to identify potentially influential factors relating to female appointments. First, we consider institutional theory, where firms have incentives to signal sensitivity to social values in order to maintain reputation and institutional legitimacy. In this regard, we consider the influence of social pressure from stakeholders including institutional investors, employees, and customers. Next, we consider social identity theory, which suggests that group formation is influenced by homophily, the tendency of people to be drawn to others with similar attributes, such as age, gender, race, or background. Social identity theory suggests that newly appointed directors will be like existing board members, with “male and pale” boards continuing to appoint male directors and gender-diverse boards more likely to appoint females. Working against these homophily biases is Queen Bee Syndrome, which predicts that in male-dominated cultures, such as those in U.S. boardrooms, females in positions of power are less likely to encourage advancement of other females, which would discourage gender-diverse boards from appointing additional female directors. Finally, we consider factors associated with resource dependence theory, a central tenet of which views director appointments as a means to reduce dependence on outsiders and to acquire benefits, such as the legal services of general counsel, access to resources, better ways to get information, and institutional legitimacy. Similarly, female candidates, who face a choice of boards to join, are likely influenced by the resource “richness” at each firm.
We begin our sample in 2004 to capture shifts in international pressure to improve board gender diversity. We end our sample in 2018 to avoid conflicting influences from state legislation on board gender diversity. In total, we analyze 18,351 board appointments of U.S. publicly traded firms between 2004 and 2018. We find that just over 25 percent of appointments in our sample are labeled by data provider BoardEx as female, and that the proportion of female appointments increases each year from 17 percent in 2010 to 47 percent in 2018.
Relating to institutional theory, which focuses on a firm’s desire to signal various stakeholder groups, we find evidence that firms with greater institutional holdings, those operating in industries with a higher proportion of females in the workforce, and those with an international customer base are more likely to appoint female directors. The role of institutional investors persists across sample years and all firm sizes, whereas the roles of employees and customers only emerge as influential in smaller firms and in the later years of our sample.
Social Identity Theory
Relating to social identity theory, which focuses on how the tendency of people to be attracted to similar people influences the formation of groups, we find evidence that boards with a higher proportion of females currently on the board are less likely to appoint a female director, which is consistent with Queen Bee Syndrome rather than homophily. While we cannot observe whether this outcome is driven by the behavior of female board members, an alternative explanation is that boards with at least one female director believe they are sufficiently diverse and, therefore, do not seek additional females, consistent with concerns of tokenism, or a “one and done” strategy. We further find boards that have been historically all-male are less likely to appoint a female director, whereas a board with a departing female is more likely to bring a new female director to the table, which is consistent with prior research. Finally, whereas a higher proportion of female board members appears to stifle female appointments, we find that firms with female CEOs and a greater proportion of female executives appoint more female directors. The influence of these factors persists across all time periods and firm sizes in our sample.
Resource Dependence Theory
Lastly, relating to resource dependence theory, which focuses on the potential benefits derived from board members, we find weak results overall. We find evidence that firm prestige is influential in attracting female candidates only in larger firms, which suggests that sufficient firm resources are needed for reputation to be incrementally influential. However, in additional analysis, we find that factors relating to resource dependence theory increase the probability that historically all-male boards will appoint their first female director. We further find that boards appointing their first female director have a larger average network for existing board members, which is consistent with the recruiting recommendation that boards wishing to identify and attract future female directors should expand the candidate pool. Finally, we find that boards appointing their first female director are more likely to have younger CEOs, who may be more supportive than older CEOs of progressive social norms that promote diversity.
The Key Takeaways
Overall, we find that female board appointments are influenced by institutional holdings, employees, customers, and incumbent board and executive gender diversity. We further find that the proportion of female board appointments is increasing faster than overall boardroom gender diversity, which explains why boardroom gender diversity in the U.S. is slow to change. According to the 2022 Gender Diversity Index report, which tracks the progress of Russell 3000 firms towards gender parity in the boardroom, the proportion of board seats held by women appears to have stalled. Our study provides insights that help a board identify and attract female directors. Furthermore, because prior research finds that boardroom gender diversity is positively associated with governance over financial reporting and accounting-related policies (e.g., audit, tax), our findings should be of interest to corporate boards, regulators, investors, and other stakeholders.
This post comes from Lauren Cunningham at the University of Tennessee, Knoxville’s Neel Corporate Governance Center and Laurie Ereddia at Mississippi State University’s College of Business. It is based on their recent paper “Attracting Female Directors in the U.S.: The Roles of Boards, Executives, and Other Stakeholders,” forthcoming in the Journal of International Accounting Research and available here.