The 2008-2009 global financial crisis (GFC) has cast a pall over several corporate governance mechanisms in many firms worldwide. Nonetheless, how the firms treated their female directors in the aftermath and whether they maintained gender diversity on their boards remain mostly unknown and unexplored.

A large body of research suggests that female directors not only improve the quality of corporate governance but also, under certain conditions, help boost a firm’s financial performance. These considerations aside, firms are under sustained pressure from stakeholders to increase female representation on their boards for the sake of representation and fairness, prompting the enactment of laws requiring gender quotas and corporate governance codes that “recommend” an increase in board gender diversity.

In recent years, many firms have even appointed female chief executives. Yet, the question remains: How committed are these firms, including their female CEOs, to increasing board gender diversity? In a recent study, we used the GFC as a natural experiment to study the evolution of board gender diversity post-GFC.

The Natural Experiment

Our study was based on the premise that when a country was affected by the GFC, nearly all firms in that country were also affected, and they were our treatment sample. Nonetheless, some countries were only lightly affected or largely unaffected by the GFC for various reasons. For the purpose of the natural experiment, the firms in those countries were our control sample. We examined whether the treatment sample managed board gender diversity differently than the control sample did.

We found that the treatment sample firms reduced the number of female directors on their boards more than did the control sample firms. For clarity, we ensured that no prior difference in the levels of board gender diversity across the two test samples (i.e., before the GFC) was affecting our results. We also found that it made no difference whether the female directors served as part of the executive team (excluding the CEO) or were appointed as non-executive directors, including independent directors. All types were let go in countries affected by the GFC.

Who Could Have Helped

We posited that two factors could have mitigated the negative effect of the GFC on board gender diversity. The first was whether the firm was led by a female CEO. The second was whether the firm was in a country that had enacted regulations such as gender quotas and corporate governance codes.

We expected that female CEOs would be much more mindful of the difficulties females face rising through the corporate ranks to occupy board seats; they would be more likely and willing to stem the decline in female board representation post-GFC, if only for reasons of solidarity. For regulatory interventions, the expectations were more straightforward: Firms would avoid breaking the law even if it were not a strict law with strong penalties.

We found that neither female CEOs nor regulatory interventions could significantly moderate the negative effect of the GFC on board gender diversity. Here, the weaker corporate governance codes, while numerous, proved useless. In comparison, gender quotas fared marginally better. However, the big surprise was the inability or unwillingness of female CEOs to stem the decline of female directors after the GFC. With additional analysis, we discovered that even powerful female CEOs, such as board chairs or those with access to nomination and appointment mechanisms, were unable or unwilling to stem the decline. The only exception we identified were the junior female non-CEO executive directors, more of whom retained their positions than other directors did, especially when female CEOs were in charge.

Implications

Economic and sociological research has long documented that shop-floor-level women face tremendous financial and economic stress after a major crisis. In our study, we highlight the plight of the top female directors and other top executives to show that their board positions and executive-level employment also face a similar risk after a major economic event such as the GFC. More important, our study revealed that female leadership and institutional mechanisms do not ensure more gender-diverse boards, especially during economic downturns. Nonetheless, we discovered a glimmer of hope in female leaders’ commitment to their junior female executives, whose positions were more secure under them.

However, more research is needed to identify the reasons behind female leadership’s unwillingness or inability to safeguard female board representation post-GFC. It is especially important in a post-COVID-19 world to ensure the right lessons are learned and past mistakes avoided. Finally, we must identify the gaps in existing institutional mechanisms before creating new ones.

This post comes from professors Shibashish Mukherjee at Emlyon Business School in France and Sorin M.S. Krammer at Surrey Business School in the UK. It is based on their recent paper, “When the going gets tough: Board gender diversity in the wake of a major crisis,” available here.