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Tina Casey headshot

Why Female Board Representation Does (And Does Not) Matter

By Tina Casey
female board representation

A growing body of behavioral research is illustrating how the old adage, “pride goeth before a fall,” applies to top corporate leadership. Overconfidence is the key factor that drives CEOs — predominantly male CEOs — to underestimate risks and make rash decisions with negative bottom line consequences. A new study published in the Harvard Business Review adds an interesting gender-based twist: corporate boards that include women are more likely to exercise a beneficial, moderating influence on male CEOs.

Overconfidence and the gender factor

To be clear, the new research does not make the case that women act as moderating influences because they are less confident. Quite the opposite.

“One benefit of having female directors on the board is a greater diversity of viewpoints, which is purported to improve the quality of board deliberations, especially when complex issues are involved, because different perspectives can increase the amount of information available,” the authors explain.

They also emphasize previous research that supports other elements of strength and confidence that women directors tend to possess. That includes a tendency to be less conformist and more independent in thinking.

Interestingly, the authors point out that independent thinking is linked to the absence of a supportive “old-boy” network, in which insiders are reluctant to challenge each other.

The result is that female directors tend to be more confident about challenging a male CEO’s decisions.

Risk, gender and climate change

The new study also has some implications for the ability of corporations to switch gears and adopt new strategies that address the risks of climate change.

The authors chose to study CEO behavior from 1998 to 2013, a period when women in top positions were a rarity. In the study sample, women accounted for only 2.9 percent of CEOs and 10.4 percent of board members overall.

As an indicator of overconfidence, the authors examined how CEOs in the study sample exercised stock options.

Overconfidence is evident among CEOs who continue to hold their options when the market price is already high. They anticipate even higher gains in the future, a gamble that does not always turn out well.

After controlling for other factors, the survey showed that male CEOs were less likely to continue holding options when women were present on their board.

“…we did find that having at least one female director on the board was associated with less aggressive investment policies, better acquisition decisions, and ultimately improved firm performance in these industries,” the authors conclude.

They also found that female representation on boards correlated with the ability of companies to manage risk during the peak years of the financial crisis, from 2007 to 2009. The findings suggest that these companies were exposed to less risk in the run-up to the market collapse.

As for climate change and climate action, the authors also note that the degree of overconfidence varied significantly by sector. For example, the female factor was not evident in the utility and telecom sectors, possibly because those sectors tend to attract CEOs with a more cautious character.

How overconfidence contributed to the decline of coal

Significantly, the authors identified coal as one of the sectors in which male overconfidence was most evident.

The coal industry has been marked by a lack of gender diversity throughout its history. Coincidentally or not, coal CEOs have been caught flat-footed as the global economy pivots to cleaner energy.

The gender problem for coal goes beyond corporate risk taking. By failing to recruit a diversified workforce and failing to promote women from within, coal is also falling behind in the global talent race.

Here in the U.S., regardless of public policy the up-and-coming workforce is more diverse and more likely to take climate risks seriously.

That leaves coal companies with a rapidly shrinking pool of talent to draw from, while facing increased competition for talent in the burgeoning renewable energy field.

Tech companies also have some explaining to do

The authors also found that CEOs within the information technology space were also susceptible to overconfidence.

That tendency still appears to be resonating today in the context of climate action. Industry observers are beginning to notice that, as a group, tech leaders are not responding to climate change in proportion to the power they wield over the global economy.

Last summer, the Financial Times published an op-ed that summarized the situation:

“…few of Silicon Valley’s amazing achievements have had a bearing on climate change. The world’s most innovative place lacks answers to the world’s existential problem. The contrast is striking, given that many tech employees worry about the issue.”

Fast Company also looked at the issue last summer and took a more nuanced approach, arguing that tech companies have taken some important steps to reduce their carbon footprints, but as a group they have barely scraped the surface of their power to change behavior on a massive scale.

Coincidentally or not, the recent intensification of climate action — and employee activism — is concurrent with diversification of the workforce, including c-suites and boardrooms.

It may be too late to save coal, but the tech sector still has an opportunity to scale up climate action and strategize for a sustainable future - with the help of more women in top leadership.

Don’t forget: Later this month, we’ll be hosting 3BL Forum: Brands Taking Stands – What's Next, October 29-30, at MGM National Harbor, just outside Washington, D.C. Included in our lineup of 90-plus speakers will be a conversation on the afternoon of the 29th about the journeys four impressive women took toward the C-suite.  

We're pleased to offer 3p readers a 25 percent discount on attending the Forum. Please register by going to the 3BL Forum website and use this discount code when prompted: NEWS2019BRANDS.

Image credit: Vaughn Smith/Pixabay

Tina Casey headshot

Tina writes frequently for TriplePundit and other websites, with a focus on military, government and corporate sustainability, clean tech research and emerging energy technologies. She is a former Deputy Director of Public Affairs of the New York City Department of Environmental Protection, and author of books and articles on recycling and other conservation themes.

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