Resistance to Change in the Corporate Elite: Female Directors’ Appointments onto Nordic Boards

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.

This is a preview of subscription content, access via your institution.

Notes

  1. 1.

    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.

  2. 2.

    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).

  3. 3.

    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).

  4. 4.

    The terms organization, corporation, firm, and company are used interchangeably in this paper.

  5. 5.

    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.

  6. 6.

    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.

  7. 7.

    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.

  8. 8.

    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.

  9. 9.

    Women reportedly encounter barriers to building professional relationships with the male members of the corporate elite, and to moving up the organizational hierarchy (e.g., Farrell and Hersch 2005; Waldstrøm and Madsen 2007).

  10. 10.

    The members with diverse backgrounds and experiences have different interpretive frameworks (e.g., Oliver 1992; Pelled et al. 1999), and will therefore be more likely to join women in questioning taken-for-granted practices.

  11. 11.

    http://www.svd.se/naringsliv/nyheter/sverige/spendrups-uttalande-om-kvinnor-uppror_8977028.svd.

  12. 12.

    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.

  13. 13.

    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.

  14. 14.

    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.

  15. 15.

    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.

  16. 16.

    The estimates for the industry dummies are not reported for reasons of space.

References

  1. Adams, R. B., & Ferreira, D. (2009). Women in the boardroom and their impact on governance and performance. Journal of Financial Economics, 94, 291–309.

    Article  Google Scholar 

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

    Article  Google Scholar 

  3. Astley, W. G., & Van den Ven, A. H. (1983). Central perspectives and debates in organizational theory. Administrative Science Quarterly, 28, 245–273.

    Article  Google Scholar 

  4. Bøhren, Ø. & Staubo, S. (2014). Does mandatory gender balance work? Changing organizational form to avoid board upheaval. Journal of Corporate Finance, 28, 152–168.

  5. Bøhren, O., & Strøm, Ø. (2010). Governance and politics: Regulating independence and diversity in the board room. Journal of Business Finance & Accounting, 37, 1281–1308.

    Article  Google Scholar 

  6. Brammer, S. S., & Millington, A. (2006). Firm size, organizational visibility and corporate philanthropy: An empirical analysis. Business Ethics: A European Review, 15, 6–18.

    Article  Google Scholar 

  7. Carroll, W. K., & Fennema, M. (2002). Problems in the study of transnational business community. International Sociology, 19, 369–378.

    Article  Google Scholar 

  8. Child, J. (1972). Organization structure, environment and performance: The role of strategic choice. Sociology, 6, 1–22.

  9. Clemens, B. W., & Douglas, T. J. (2005). Understanding strategic responses to institutional pressures. Journal of Business Research, 58, 1205–1213.

  10. Coles, J. L., Naveen, D. D., & Naveen, L. (2008). Boards: Does one size fit all? Journal of Financial Economics, 87, 329–356.

    Article  Google Scholar 

  11. Covaleski, M. A., & Dirsmith, M. W. (1988). An institutional perspective on the rise, social transformation, and fall of a university budget category. Administrative Science Quarterly, 33, 562–587.

    Article  Google Scholar 

  12. DiMaggio, P. J., & Powell, W. W. (1983). The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields. American Sociological Review, 48, 147–160.

    Article  Google Scholar 

  13. Dobin, F., & Jung, J. (2011). Corporate board gender diversity and stock performance: The competence gap or institutional investor bias? North Carolina Law Review, 89, 809–838.

    Google Scholar 

  14. Economist. (2010). Skirting the issue: Imposing quotas for women in boardrooms tackles a symptom of discrimination, not the cause. March 11th, print edition.

  15. Fanto, J. A., Solan, L. M., & Darley, J. M. (2011). Justifying board diversity. North Carolina Law Review, 89, 901–936.

    Google Scholar 

  16. Farrell, K. A., & Hersch, P. L. (2005). Additions to corporate boards: The effect of gender. Journal of Corporate Finance, 11, 85–106.

    Article  Google Scholar 

  17. Feld, S. L. (1982). Social structural determinants of similarity among associates. American Sociological Review, 47, 797–801.

    Article  Google Scholar 

  18. Filatotchev, I., Toms, S., & Wright, M. (2006). The firm’s strategic dynamics and corporate life-cycle. International Journal of Managerial Finance, 2, 259–279.

    Article  Google Scholar 

  19. Fligstein, N. (1985). The spread of the multidivisional form among large firms, 1919–1979. American Sociological Review, 50, 377–391.

    Article  Google Scholar 

  20. Forbes, D. P., & Milliken, F. J. (1999). Cognition and corporate governance: Understanding boards of directors as strategic decision-making groups. Academy of Management Review, 24, 489–505.

    Google Scholar 

  21. Goodstein, J. D. (1994). Institutional pressures and strategic responsiveness: Employer involvement in work–family issues. Academy of Management Journal, 37, 350–382.

    Article  Google Scholar 

  22. Greenwood, R., & Hinings, C. R. (1996). Understanding radical organizational change: Bringing together the old and the new institutionalism. Academy of Management Review, 21, 1022–1054.

    Google Scholar 

  23. Greenwood, R., Oliver, C., Suddaby, R., & Sahlin, K. (2008). Introduction. In R. Greenwood, C. Oliver, R. Suddaby, & K. Sahlin (Eds.), Organizational institutionalism (pp. 1–46). London: Sage.

    Google Scholar 

  24. Greenwood, R., Raynard, M., Kodeih, F., Micelotta, E. R., & Loundsbury, M. (2011). Institutional complexity and organizational responses. The Academy of Management Annals, 5, 317–371.

    Article  Google Scholar 

  25. Heemskerk, E. M. (2011). The social field of the European corporate elite: A network analysis of interlocking directorates among Europe’s largest corporate boards. Global Networks, 11, 440–460.

    Article  Google Scholar 

  26. Hillman, A. J., Cannella, A. A., & Harris, I. C. (2002). Women and racial minorities in the boardroom: How do directors differ? Journal of Management, 28, 747–763.

    Article  Google Scholar 

  27. Hillman, A. J., Shropshire, C., & Cannella, A. A. (2007). Organizational predictors of women on corporate boards. Academy of Management Journal, 50, 941–952.

    Article  Google Scholar 

  28. Ingram, P., & Simons, T. (1995). Institutional and resource dependence determinants of responsiveness to work–family issues. Academy of Management Journal, 38, 1466–1482.

    Article  Google Scholar 

  29. Jackson, S. E., May, K. E., & Whitney, K. (1995). Understanding the dynamics of diversity in decision-making teams. In R. A. Guzzo, E. Salas, et al. (Eds.), Team effectiveness and decision making in organizations (pp. 204–261). San Francisco: Jossey-Bass.

    Google Scholar 

  30. Johnson, S., Schnatterly, K., Bolton, J. F., & Tugle, C. S. (2011). Antecedents of new director social capital. Journal of Management Studies, 48, 1781–1803.

    Article  Google Scholar 

  31. Julian, S. D., Ofori-Dankwa, J. C., & Justis, R. T. (2008). Understanding strategic responses to interest group pressures. Strategic Management Journal, 29, 948–963.

    Google Scholar 

  32. Kanter, R. M. (1977). Men and women of the corporation. Numbers: Minorities and majorities. In R. M. Kanter (Ed.), Men and women of the corporation. New York: Basic Books.

    Google Scholar 

  33. Kearney, E., Gebert, D., & Voelpel, S. C. (2009). When and how diversity benefits teams: The importance of team members’ need for cognition. Academy of Management Journal, 52, 581–598.

    Article  Google Scholar 

  34. Lau, D. C., & Murnighan, J. K. (1998). Demographic diversity and faultlines: The compositional dynamics of organizational groups. Academy of Management Review, 23, 325–340.

    Google Scholar 

  35. Leblebici, H., Salancik, G., Copay, A., & King, T. (1991). Institutional change and the transformation of the U.S. radio broadcast industry. Administrative Science Quarterly, 36, 333–363.

    Article  Google Scholar 

  36. Masulis, R., Wang, C., & Xie, F. (2012). Globalizing the boardroom—The effects of foreign directors on corporate governance and firm performance. Journal of Accounting and Economics, 53, 527–554.

    Article  Google Scholar 

  37. Matsa, D., & Miller, A. (2011). Chipping away at the glass ceiling: Gender spillovers in corporate leadership. American Economic Review, 101, 635–639.

    Article  Google Scholar 

  38. Meyer, J. W., & Rowan, B. (1977). Institutional organizations: formal structure as myth and ceremony. American Journal of Sociology, 83, 340–363.

    Article  Google Scholar 

  39. Nielsen, S., & Huse, M. (2010). The contribution of women on boards of directors: Going beyond the surface. Corporate Governance: International Review, 18, 136–148.

    Article  Google Scholar 

  40. Okhmatovskiy, I., & David, R. J. (2011). Setting your own standards: Internal corporate governance codes as a response to institutional pressure. Organization Science, 23, 155–176.

    Article  Google Scholar 

  41. Oliver, C. (1991). Strategic responses to institutional processes. Academy of Management Review, 16, 145–179.

    Article  Google Scholar 

  42. Oliver, C. (1992). The antecedents of deinstitutionalization. Organization Studies, 13, 563–588.

    Article  Google Scholar 

  43. Oxelheim, L., Gregoric, A., Randøy, T., & Thomsen, S. (2013). On the internationalization of corporate boards—The case of Nordic firms. Journal of International Business Studies, 44, 173–194.

    Article  Google Scholar 

  44. Pache, A. C., & Santos, F. (2010). When worlds collide: The internal dynamics of organizational responses to conflicting institutional demands. Academy of Management Review, 35, 455–476.

    Article  Google Scholar 

  45. Pelled, L. H., Eisenhardt, K. M., & Xin, K. R. (1999). Exploring the black box: An analysis of work group diversity, conflict and performance. Administrative Science Quarterly, 44, 1–28.

    Article  Google Scholar 

  46. Rhodes, M., & Van Apeldoorn, B. (1998). Capital unbound? The transformation of European corporate governance. Journal of European Public Policy, 5, 406–427.

    Article  Google Scholar 

  47. Scott, W. R. (2013). Institutions and organizations: Ideas, interests and identities (4th ed.). Thousand Oaks, CA: Sage.

    Google Scholar 

  48. Stafsudd, A. (2006). People are strange when you’re a stranger: Senior executives select similar successors. European Management Review, 3, 177–189.

    Article  Google Scholar 

  49. Terjesen, S., Sealy, R., & Singh, V. (2009). Women directors on corporate boards: A review and research agenda. Corporate Governance: International Review, 17, 320–337.

    Article  Google Scholar 

  50. Tolbert, P. S., & Zucker, L. G. (1983). Institutional sources of change in the formal structure of organizations: The diffusion of civil service reforms, 1880–1935. Administrative Science Quarterly, 23, 22–39.

    Article  Google Scholar 

  51. Udayasankar, K. (2008). Corporate social responsibility and firm size. Journal of Business Ethics, 83, 167–175.

    Article  Google Scholar 

  52. Useem, M., & Karabel, J. (1986). Pathways to top corporate management. American Sociological Review, 51, 184–200.

    Article  Google Scholar 

  53. Waldstrøm, C., & Madsen, H. (2007). Social relations among managers: Old boys’ and young women’s networks. Women in Management Review, 22, 136–147.

    Article  Google Scholar 

  54. Westphal, J. D., & Khanna, P. (2003). Keeping directors in line: Social distancing as a control mechanism in the corporate elite. Administrative Science Quarterly, 48, 351–398.

    Article  Google Scholar 

  55. Westphal, J. D., & Milton, L. P. (2000). How experience and network ties affect the influence of demographic minorities on corporate boards. Administrative Science Quarterly, 45, 366–398.

    Article  Google Scholar 

  56. Westphal, J. D., & Stern, I. (2006). The other pathway to the boardroom: Interpersonal influence behavior as a substitute for elite credentials and majority status in obtaining board appointments. Administrative Science Quarterly, 51, 169–204.

    Article  Google Scholar 

  57. Westphal, J. D., & Zajac, E. J. (1995). Who shall govern? CEO/board power, demographic similarity, and new director selection. Administrative Science Quarterly, 40, 60–83.

    Article  Google Scholar 

  58. Withers, M. C., Hillman, A. J., & Cannella, A. C. (2012). A multidisciplinary review of the director selection literature. Journal of Management, 38, 243–277.

    Article  Google Scholar 

  59. Woidtke, T. (2002). Agents watching agents? Evidence from pension fund ownership and firm value. Journal of Financial Economics, 63(1), 99–131.

    Article  Google Scholar 

  60. Zucker, L. G. (1987). Institutional theories of organization. Annual Review of Sociology, 13, 443–464.

    Article  Google Scholar 

Download references

Author information

Affiliations

Authors

Corresponding author

Correspondence to Lars Oxelheim.

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

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

Download citation

Keywords

  • Board of directors
  • Gender diversity
  • Gender quota
  • Board diversity
  • Corporate elite