Abstract
In this empirical study, we investigate the variation in firms’ response to institutional pressure for gender-balanced boards, focusing specifically on the preservation of prevailing practices of director selection and its impact on the representation of women on the board of directors. Using 8 years of data from publicly listed Nordic corporations, we show societal pressure to be one of the determinants of female directorship. Moreover, in some corporations, the director selection process may work to maintain “a traditional type of board”. In such boards, demographic diversity among male members appears to be associated with a lower share of female directors, although we cannot establish wether this reflects discrimination or a desire to maintain critical competencies. With this paper we add to the theoretical understanding of the factors underlying female board appointments by adopting an institutional theory lens to study female board representation. Viewing the demands for gender-balanced boards in terms of societal pressure for the de-institutionalization of the prevailing norms and practices, we highlight preferences for maintaining established practices as a potentially important barrier to institutional change. On these grounds, we conjecture on the relationship between the gender diversity of boards and other diversity dimensions. We suggest that a board room gender quota (if implemented) is supplemented by policies to ensure the transparency of board changes, in order to prevent the crowding out of other diversity dimensions.
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Notes
The terms old elite or traditional directors are used in this paper to label those directors who—in terms of age, nationality and gender—used to constitute the majority of the directors’ elite. The terms current or traditional practices are used to label the recruitment norms, criteria, and channels that are still widely used and generally associated with the traditional corporate elite.
Women currently represent around 40 % of the world’s labor force (World Bank 2015, http://data.worldbank.org). However, in 2013, just 17.6 % of board seats in the largest publicly listed companies in the EU member states were held by women (European Parliament, News 18 November 2013).
Organizational institutionalism refers to the stream of studies applying the institutional lens to analyze why organizations behave as they do, and with what consequences (Greenwood et al. 2008, p. 1).
The terms organization, corporation, firm, and company are used interchangeably in this paper.
Other studies investigating organizational responses build on the research pioneered by Oliver. Among the empirical studies, Goodstein (1994) and Ingram and Simons (1995), for example, use this frame to analyze the variations in employers’ involvement in work-family issues. Julian et al. (2008) test and expand the framework by introducing internal actors’ perceptions of the urgency and manageability of the required change. Okhmatovskiy and David (2011) analyze firm responses to newly adopted corporate governance standards in Russia. Greenwood and Hinings (1996), Greenwood et al. (2011), and (Pache and Santos 2010) are examples of theoretical advancements of this framework.
In June 2003, after a period of intense public debate, the Norwegian government issued a voluntary recommendation, according to which a minimum 40 percent representation of each gender on the boards of limited liability companies was supposed to be ensured. However, many firms did not comply voluntarily with the assigned two-year period. Consequently, the quota law became effective in January 2006, giving the companies only 2 years to meet the new requirements. The fact that the Norwegian government was forced to resort to a quota law to increase female representation further indicates that corporations were skeptical about the effects of the recommended changes.
We allow for both shareholders’ and the current board members’ preferences to play a role in the selection of female directors. In the Nordic countries, the shareholders not only formally appoint directors but also play a bigger role in the selection process and—when holding a large ownership share—they themselves hold a board seat. Past studies, however, show that the nomination committee often proposes prospective candidates based on recommendations by current board members or by executive search firms that tend to follow the directors’ preferences (Johnson et al. 2011; Stafsudd 2006). Anecdotal evidence and case-based evidence from Nordic firms similarly suggest that the decision to search for a female candidate is often initiated by the board.
Prior studies (e.g., Covaleski and Dirsmith 1988) support the relevance of the fit between the existing norms and practices, showing how an organization’s established practice dissolves or changes once its objectives change and become inconsistent with the organizational objectives and processes.
The Norwegian quota, for example, states the criteria separately for the shareholder and employee-elected directors. For shareholder-elected directors, it requires the following: on boards with two or three members, both genders are to be represented; on boards with four or five members, each gender is to be represented by at least two members; on boards with six to eight members, each gender is to be represented by at least three members; on boards with nine members, each gender is to be represented by at least four members; on boards with more than nine members, at least a 40 % representation of each gender is required. Different rules apply to employee-elected directors. In cases where two or more employee representatives are to be elected, both genders must be represented. This rule, however, does not apply in companies where a gender represents less than 20 % of the total number of employees at the time of the election.
This categorization is not exhaustive in the sense that it does not consider all the attributes that are distinctive of the corporate elite. For example, we do not consider directors’ experience and education. However, the directors’ experience, in particular, may be partly captured by other variables since it is likely to be associated with age (e.g., Hillman et al. 2002) and residence abroad.
Given the high share of women among the labor force currently, the supply of female candidates and the benefits of their representation are likely than in the case of shareholder-elected members. In fact, from the beginning of our sample period, the share of women among the employee-elected directors has been relatively high (around 20 %) and it has not changed substantially over the observation period.
The coefficient for the variable Capital cannot be estimated in the specifications with firm fixed effects since the value of this variable does not vary in time.
The estimates for the industry dummies are not reported for reasons of space.
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Gregorič, A., Oxelheim, L., Randøy, T. et al. Resistance to Change in the Corporate Elite: Female Directors’ Appointments onto Nordic Boards. J Bus Ethics 141, 267–287 (2017). https://doi.org/10.1007/s10551-015-2703-4
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DOI: https://doi.org/10.1007/s10551-015-2703-4