SNS Research Brief 9. Gender balance leads to a more involved board of directors

PROPOSAL FOR QUOTAS FROM THE EU. According to a proposal for a new EU-directive for gender balance on boards of directors in listed companies, each sex should constitute at least 40 per cent of the non-executive board members. Those companies that do not fulfil this requirement must provide an explanation in accordance with the so-called comply or explain-model. This research survey shows a number of results which indicate that the gender balance has positive effects on the work of the board of directors. Based on the research situation, there is thus no reason to believe that quotas for boards of directors would have any negative effects on the profitability of the companies. But research should not be used as an argument to legislate on quotas. Such a decision must take its starting point in political values. Equality or the owners’ right to decide, what carries more weight?

MORE WOMEN MIGHT LEAD TO MORE ACTIVE BOARDS OF DIRECTORS. The research indicates that more women in the board rooms lead to an increase in the quality of the work of the board of directors. Women do often have a valuable outside perspective, reinforce the supervisory function of the board of directors and increase the requirements made on low-performing managing directors. There is also a relationship between the number of women on the board of directors and the gender balance in the company executive body. Moreover, female members have a higher attendance frequency than men and it is possible to also see a positive effect on the presence of men when there is an increase in the share of women.

GENDER BALANCE AND PROFITABILITY. Despite the positive effects on the work of the board of directors, and a visible positive relationship between gender balance on the board of directors and, for example, higher returns on own capital, higher profitability on total capital and higher sales growth, the profitability argument does not hold for more women on the boards of directors. It is difficult to prove that there exists a causal relationship. Did the women make the company more profitable or do successful companies take on more women?

AUTHOR Karin Thorburn is Professor of Finance at Norwegian School of Economics (NHH) in Bergen, Norway. E-mail karin.thorburn@nhh.no.