Importance of Female Board Representation

A new study published in the Harvard Business Review has said that the corporate boards that include women are more likely to exercise a beneficial, moderating influence on male CEOs.

It has been noted that overconfidence is the key factor that drives CEOs — predominantly male CEOs — to underestimate risks and make rash decisions with negative bottom-line consequences. The research does not make the case that women act as moderating influences because they are less confident.

The study says that “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.”

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.

The authors chose to study CEO behaviour from 1998 to 2013, a period when women in top positions were a rarity. In the study sample, women accounted for only 2.9 per cent of CEOs and 10.4 per cent 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. The survey showed that male CEOs were less likely to continue holding options when women were present on their board. 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.