By Kalin D. Kolev, Margaret Hughes-Morgan , & Kathleen Rehbein

There is a broad societal belief that increasing board gender diversity – the presence of more women serving as corporate directors – is beneficial to a firm’s financial performance. However, scholarly findings have been mixed, with some studies finding support for this relationship, and others finding little to no impact of including female directors on the financial outcomes of the firm (Ahern & Dittmar 2012; Carter et al., 2010; Hoobler et al., 2016; Post & Byron, 2015). Our research shifted the focus from this conversation to analyze a more proximal link – how female board members impact a firm’s strategic actions that are seen as a precursor to competitive advantage and financial success. More specifically, we examined how the presence of female board members impacts a firm’s competitive repertoire – i.e., the types of competitive actions that a firm takes over time.

Our empirical findings, based on a sample of S&P 1500 pharmaceutical firms between 2000 and 2017, clearly indicated that female directors play an important role in shaping the strategic actions of firms. We argued that by drawing on different cognitive frames, experiences, and social ties, female directors affect the board’s awareness, motivation, and capability to pursue greater volume, more complex, and more heterogeneous actions. In line with these arguments, we found that boards with greater female presence engaged in higher number of competitive actions, a greater breadth of action types, and competitive repertoires that more closely mirror their competitors. Another significant finding was that firms with a female CEO enable female board members to play an even stronger role in the firm’s competitive strategy. In particular, having a female CEO may create a more inclusive and supportive environment, encouraging even greater volume of and more complex competitive repertoires.

This empirical evidence is very timely because even though a myriad of constituencies—advocacy groups, institutional investors, and governmental officials—have intensified their efforts to increase gender diversity, white males still dominate the seats on corporate boards. Recent reports indicate that although progress is being made to diversify corporate boards both in terms of minorities and women, the progress is relatively slow. For example, the 2020 Women on Boards report indicates that only 22.6% of the board seats on the Russell 3000 companies are occupied by women; at this rate, gender-balanced boards will not be achieved until 2050.

Our study underscores an important but often overlooked financial reason why firms should take the initiative to add more female board members. As competitive actions are the mechanism that firms use to outmaneuver competitors and gain a superior competitive position (D’Aveni, 1994; Ferrier, 2001; Smith et al., 2001), there is a strong motivation to understand how female board members affect board dynamics and ultimately decisions concerning the firm’s competitive posture. Ultimately, if firms want to compete more effectively, they are better served with greater number of female directors on their board. Our advice to firms is simple:

1) be genuine in your intentions to appoint more women as directors;

2) provide a fair and equal process of hiring female directors; and

3) ensure a corporate culture of inclusion where newly appointed female directors receive the necessary advice and acceptance from their male counterparts.

Given recent moves by California legislature to facilitate gender diversity on corporate boards and the SEC approval of Nasdaq’s requirements to have at least two diverse directors (including one woman and at least one member of an under-represented community), time is running out for firms who refuse to see the societal and financial benefits of diversifying their boards.

References:

Ahern, K. R., & Dittmar, A. K. 2012. The changing of the boards: The impact on firm valuation of mandated female board representation. The Quarterly Journal of Economics, 127(1): 137-197.

Carter, D. A., D’Souza, F., Simkins, B. J., & Simpson, W. G. 2010. The gender and ethnic diversity of US boards and board committees and firm financial performance. Corporate Governance: An International Review, 18(5): 396-414.

D’Aveni, R. 1994. Hypercompetition: Managing the dynamics of strategic maneuvering. New York: Freedom Press.

Ferrier, W. J. 2001. Navigating the competitive landscape: The drivers and consequences of competitive aggressiveness. Academy of Management Journal, 44(4): 858-877.

Hoobler, J. M., Masterson, C. R., Nkomo, S. M., & Michel, E. J. 2018. The business case for women leaders: Meta-analysis, research critique, and path forward. Journal of Management, 44(6): 2473-2499.

Post, C., & Byron, K. 2015. Women on boards and firm financial performance: A meta-analysis. Academy of Management Journal, 58(5): 1546-1571.

Smith, K. G., Ferrier, W., & Ndofor, H. 2001. Competitive dynamics research: Critique and future directions. In M. Hitt & J. Harrison (Eds.), Handbook of Strategic Management (pp. 315-361). Malden, MA: Blackwell Publishers.