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Gender diversity on company boards

It is no secret that men outnumber women in the boardroom many times over. This column looks at the latest government efforts to redress this imbalance, particularly in the UK, and asks why so few companies are willing to increase the number of women on their board.

It is well known that women are under-represented on boards of directors. The latest Female FTSE Board Report notes that only 15% of FTSE 100 company board seats are occupied by female directors: 6.6% executives and 22.4% non-executives (Sealy and Vinnicombe 2012). This is a rise from an apparent plateau over the previous three years, and may be related to the attention surrounding publication of the Davies Report on the position of women on corporate boards in March 2011. However, one year after the EU Justice Commissioner, Viviane Reding, initiated a voluntary call for companies to increase the number of women on company boards, a European Commission report published on 5 March 2012 noted only limited progress towards achieving this goal, with only one in seven board members at Europe's top firms being female. From October 2012 the UK’s Corporate Governance Code will implement recommendations from the Davies Report and require companies to publish a policy statement on its approach to boardroom diversity.1 In this article we explain: (i) why the Davies Report has shied away from imposing quotas of female directors which some European countries have done2 (ii) the factors that influence gender diversity of corporate boards; and (iii) why companies are reluctant to increase the representation of female directorships.

The business case for gender diverse boards, relates to accessing more talent (Terjesen et al 2009), reflecting the diversity of wider stakeholders (Brammer et al 2009), and moving beyond the ‘old boys club’ and thus introducing a more independent perspective (Adams and Ferreira 2009). Policy documents in the UK (Davies 2011, Higgs 2003, Tyson 2003) and in the US (NACD 1998, Brancato and Patterson 1999) also argue that board diversity leads to a more effective board. Yet the evidence suggests that while representation of women at board level has increased, it remains low (Farrell and Hersch 2005, Schein 2007, Brammer et al 2007, Catalyst 2009), especially when looking at the most senior level, such as that of the CEO (Wolfers 2006).

Research into the broad absence of female corporate board directors globally has mainly focused on firm-level characteristics such as company size and industry-level drivers (Brammer et al 2007). However, although the institution of the corporate board is largely the same across the industrialised world – it is the apex of corporate decision-making, tasked with overseeing the firm’s strategy and ensure the firm works to enhance shareholder value – the context within which boards operate and are distinctly different. These differences relate to institutional elements like political systems, culture, education, macroeconomic systems, and the prevailing norms that govern the labour market, for example. Grosvold and Brammer (2011) identify institutional context as an important yet often overlooked element in the analysis of demographic board composition. Institutional differences may partly explain why the UK has reservations against quotas and is keen to promote a voluntary approach driven by business through such as initiatives as the 30% Club.

In contrast, Norway, which introduced a quota to ensure women were better represented at board level, has a history of using quotas to redress imbalanced gender distributions in the echelons of power. There is a similar quota for female ministers in any sitting Norwegian government. The UK in comparison has little history of using such interventions, to redress demographic imbalances. Norway also operates a different welfare system, which means that women are afforded more opportunities to balance work life with child-rearing.

In considering how to address the issue of the low level of female board participation in the UK, broader institutional elements need to be considered. It may be that the institutional infrastructure is not available in the UK (eg the substantial absence of state-subsidised child care) to make such a quota system workable in the short run. While quotas work in some contexts, they may not work in all. That said, the success of the quota system in Norway leaves little doubt that quotas that are upheld represent an effective way of increasing the share of board seats held by women. The question is whether the political will and legislative commitment is there to enforce such a quota should it be introduced in the UK and perhaps crucially whether women wish to commit to an executive role in the absence of appropriate mechanisms that allows them to balance work and family life. There is also the question of how UK women would be perceived in the board room if they were appointed under a quota system that may not be deemed to reflect their skills and abilities by currently serving directors, male or female, who were not appointed under a similar system. In the Norwegian context, government quotas had previously shown this to be of little consequence over time.

The explanations for why women are broadly absent from corporate boardrooms across the world have been mainly focused on firm-level determinants. Brammer et al (2007) investigate the ethnic and gender diversity of corporate boards for 543 UK public limited companies (the majority of constituent companies of the FTSE All-Share Index in 2002), and identify a strong link between board size and industry characteristics. They find both ethnic and gender diversity to be very limited, and that diversity is somewhat less pronounced among executive positions. Table 1 shows significant cross-sector variation in gender diversity, with an above-average prevalence of women in the retail, utilities, media, and banking sectors.

Table 1. Board composition and gender diversity across sectors


Number of firms in sample

Board size (Number of Exec & Non-exec Board members)

Percentage of board that is female





























Other finance












Business services




Consumer goods








Source: Brammer et al (2007)

Brammer et al (2007) conclude that board diversity is partly influenced by a firm’s external business environment and particularly a need to mirror the demographic diversity among its customers. Brammer et al (2009) extend this work to investigate the determinants of corporate reputation, derived from the assessments of managers and market analysts, for a sample of large UK firms. They find a reputational effect associated with a female presence at board level; one that varies across sectors and demonstrates the influence of a firm’s stakeholder environment in determining whether a female presence on the board enhances or harms the reputation of the firm. The pattern that emerges indicates that the presence of women on the board is favourably viewed in only those sectors that operate close to final consumers.

To understand why companies appear reluctant to appoint female directors, Gregory et al (2012) examine how the stock market perceives the relative capabilities of male and female managers, by examining how the stock market responds to information about male and female directors trading in their own company’s shares. Lee and James (2007) and Adams et al (2009) documented a negative short-run market reaction to the appointment of female CEOs. (Stock markets typically respond negatively to the appointment of a new CEO, but more negatively to female than male appointments).

However there are only a small number of cases of female director appointments, whereas the number of directors’ trades are much more numerous, leading to more powerful tests. The sample in Gregory et al (2012) consists of 62,106 directors’ purchases in FTSE All-Share and AIM-listed companies over the period 1994–2006, made by 14,747 male and 610 female directors. They examine the stock market response to the news of purchases of company shares by male and female executive and non-executive directors, in both the short-term and the long-term. It is argued that markets may exhibit a gender bias in their short-term reaction to events involving female executives – but that these short-run inefficiencies will be corrected in the longer-term, as the market re-evaluates initial perceptions when more information on performance became available.

Gregory et al (2012) find that 20 days after a directors’ purchase of shares, a company’s stock price rises on average by 1.55%. When these buy trades are split by gender, stock prices increase by 1.57% for male directors trades, but in contrast the market’s reaction to female trades is only 0.88%. So the short-run price reaction to male directors’ buy trades is larger than that for female directors’. However in the long-run these short-run effects are corrected: after three, six, and twelve months, at every horizon female trades exhibit slightly higher abnormal returns than their male counterparts. Male directors’ trades generate abnormal returns of 0.33% per month after 12 months whereas the female directors’ trades generate returns of 0.44% per month at the 12-month horizon – although these differences are not statistically significant.

The implications of this research seem clear: observed abnormal returns beyond the date of the directors’ trade shows that markets initially under-react to the information conveyed by directors’ trades (for both males and females), but over the subsequent 12 months the information in these trades is incorporated into stock prices. The short-run market reactions retain a ‘gender bias’, reflecting the prevalence of negative stereotypes; where the market reacts to ‘beliefs’ rather than ‘performance’. The announcement period market reaction fails to reflect the actual information-gathering capabilities of female directors but reveals only the market’s perception of such capabilities, which may have less to do with their actual capabilities and more to do with gender stereotyping.




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1 In May 2011 the UK’s Financial Reporting Council which administers the Corporate Governance Code consulted on the recommendations in the Davies Report and subsequently proposed two amendments to the Code. The Code previously included provisions recognising the need to incorporate diversity when searching for new board members. The additional amendments become effective from October 2012 and relate to (i) a statement on the board’s policy on diversity, including gender, along with identifying measures for achieving these objectives (FRC 2011: Para. B.2.4); and (ii) when evaluating its own performance, the board should “consider the balance of skills, experience, independence and knowledge of the company on the board, its diversity, including gender, how the board works together as a unit, and other factors relevant to its effectiveness” (FRC 2011; Para. B.6).

2 In Norway, Spain, Belgium, the Netherlands, and France regulators have imposed compulsory or quasi-compulsory recommendations on female representation on boards.

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