Critical Thinking

1. success is a primary goal of any

1.         

In recent years, there has been a continuous, worldwide debate concerning the representation of females in companies’ boards. The board composition, in return, is a topic of prime importance, especially in the context of global financial crisis 1, because it affects the performance of the board. It supervises the activities of a company, establishes the corporate strategy, appoints and monitors senior management, and functions as the main corporate governance mechanism. Taking this fact into consideration, board’s actions in long- and short-term period influences firm performance. 6 Therefore, the manner in which the board succeeds has a direct impact on firm financial results. 

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“Board diversity” may be described as the variety inherent in a board’s composition. This variety can be measured as a number of dimensions, such as gender, age, ethnicity, nationality, educational background, industrial experience and organizational membership 5. Especially, the matter of board gender diversity has drawn growing research attention. The business case for diversity claims that diverse group members enhance corporate governance by suggesting broader knowledge bases and experiences 10, 18. As a consequence, the cognitive resource model introduces that as diversity in team rises, the applicable cognitive resources rise simultaneously 12, 15. If used effectively, these diverse prospects can commit a more accurate research of alternative solutions to problems, as they offer new attitude to the boardroom 22. These perspectives also encourage to a critical analysis of complex issues, prevent rushed decision-making, as well as develop innovative and creative solutions 6. Therefore, increased female representation on companies’ boards may improve firm financial results through the diverse perspectives introduced to the boardroom 6.

Another vital argument in favor of diversity in boards is that women suggest proper female management competencies and skills to the board. These include, for instance, risk disinclination and more progressive decision-making 13, likewise more consistent investment strategies 6. Additionally, female managers fulfill their leadership roles at a totally new level than their male counterparts, discerning themselves as encouraging and supportive members of the group. Women are also said to appreciate their duties as a manager higher, which is related to more effective corporate governance 20. 

Growing gender equality and female presence in corporate governance have progressively become the focal point of societal and political discussions around the globe 17. Despite vast activity to raise women’s presence on corporate boards, men still predominate in the business world. The financial consequences of increased female representation on corporate boards may significantly determine if, and how, regulations to popularize females to higher positions are implemented, as aspiring financial success is a primary goal of any company. 6

But on the other hand, individuals tend to perceive others and themselves as parts of conspicuous social categories, such as gender or age, thereby creating in- and out-groups 19. These categorization trends, which might cause grown gender salience and a perceived lack of converging with the group’s stereotypes 6, may endanger working team processes when vital subgroups turn up. If the created subgroups on corporate boards are on grounds of gender, communication and cooperation might be deteriorated 21, ending to risen conflicts between board members. In return, this opportunity for interindividual arguments might slow-down the decision-making process and result in a lack of solidarity between board members and reduce strategic coherence 14, interfering corporate boards’ effectiveness.

Thus, it has been theorized that the female representation on company boards may increase firm financial performance only on condition that those women introduce an additional perspective to board activities and decision-making process. Then it will end in a better comprehension of the marketplace, raise creativity and innovation, and enhance a firm’s competitive advantage. It is also claimed that greater diversity might increase the independence of the board because females tend to ask questions that would not be asked by men. Other research has proposed that greater gender diversity may serve to reduce firm financial performance.

Taking into account that millions of women joining the labor market in Europe, it is astonishing that only few senior positions in the top corporate firms are held by women. In contrast to relatively moderate gender gaps in the European prime-age workforce in 2014, women occupied on average only 19 percent of corporate board seats and 14 percent of senior executive positions in the top 600 largest companies in Europe. Even more striking is that only 4 percent of the chief executive officers of these companies were female. 16

Based on the January 2017 S&P 500 list women currently hold 26 (5.2%) of CEO positions and 21.2 % are in boards at those S&P 500 companies.

These gender inequality at the top of the career ladder have prompted some European countries to institute quotas for women on boards of publicly listed companies. Since Norway passed a law in 2003 mandating 40 % representation of both men and women on the board of publicly listed companies, sixteen European countries have implemented similar reforms 5. Most recently, Germany passed a law requiring publicly listed companies to have 30 % of boards seats occupied by women from 2016. Even where no legal requirements are created, boards are under growing pressure to nominate female directors 16. The European Commission (EC) has called on publicly listed companies to voluntarily commit to raise the presence of women on boards to 30 percent by 2015 and 40 percent by 2020 among non-executive directors by actively recruiting qualified women to replace outgoing male members.

Remarkably, that the U.S. has the largest percentage share of female CEOs, about 8 % of the top seats are held by women. However, that number declined by 1 percent from 2015 to 2016, according to the study. Meanwhile, the percentage rose in the United Kingdom, from 5 percent to 6 percent. Both France and Germany remained the same at 2 percent and 1 percent, respectively. 23

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