Stunted growth for female directors

Research indicates financial benefits of gender-diverse boards, but obstacles remain as progress lags.
Stunted growth for female directors

Male directors have historically dominated public company boards. But opportunities for women are increasing through legislative and regulatory actions, stakeholder initiatives, and corporate efforts to prioritise recruiting female board members. Research indicates that gender diversity at the board level improves board decision-making processes as well as company financial outcomes, including earnings quality. Qualified accountants are also frequently sought for board service.

In this article, we summarise global board gender-diversity trends, review impediments to gender diversity, highlight the potential benefits of board gender diversity, and offer recommendations for women considering corporate board service.

Global board gender-diversity trends

Many countries achieve comparatively high levels of female directors as a result of quotas mandating board gender diversity (see the chart, "Board Diversity by Country"). The proportion of female directors is generally lower in non-quota markets, such as the US (18.7% for S&P 500 companies), the UK (18.5% for FTSE 350), Australia (17.7% for ASX 300), and Canada (14.6% for TSX Composite), and noticeably lower in Asian markets such as Hong Kong (10.2% for Hang Seng), Singapore (6.8% for STI), and Japan (2.7% for Nikkei).

Globally, boards are 14% female, according to the World Economic Forum, with five countries above 30%: Iceland, Norway, France, Latvia, and Finland. In countries such as Australia and Canada, tougher annual report disclosure requirements and more sustained, high-profile governmental and private sector efforts have raised awareness of the board gender-diversity issue.

In the US, regulators currently require only that board nominating committees explain how they consider diversity in the board nominating process and leave it to companies to define the meaning of diversity. However, the US Securities and Exchange Commission discussed reviewing the diversity disclosure requirements in response to a 2015 report by the US Government Accountability Office, Corporate Boards: Strategies to Address Representation of Women Include Federal Disclosure Requirements. The study highlights concerns that the current requirement has failed to generate information useful to the many stakeholders of public companies.

Impediments to board diversity

The general lack of gender diversity on US corporate boards, for instance, suggests that female board nominees face challenges when seeking board service. Indeed, previous board gender research finds that factors outside of female board nominees' control affect the likelihood that companies will have a female presence on their boards. These factors include board size, company size, industry type, current proportion of female directors, and the extent of internal and external calls for diversity.

Female board nominees may also find it difficult to join male-dominated boards as boards place a high degree of importance on board collegiality when considering nominees. Thus, male directors may be more inclined to add other men from within their existing personal and professional networks. Likewise, male-dominated boards may be reluctant to add qualified women to board positions, even women with significant expertise, unless there is good mutual chemistry and a sense of comfort.

Male and female directors differ in their views regarding whether to prioritise board diversity and how to increase female presence on boards. Indeed, 36% of female directors indicate that board diversity is not a top priority in board recruiting, but only 16% of male directors agreed, according to a 2016 global survey by executive search firm Spencer Stuart.

The report, which used the responses of more than 4,000 board members in 60 countries, finds that 36% of male directors attribute the lack of gender diversity on boards to a shortage of qualified female director candidates, but only 7% of female directors agree. Preferred steps to increase gender diversity tend to vary across gender lines. Female directors are more likely to personally support board diversity quotas (49% vs. 9% of male directors) or requiring additional disclosure of board diversity efforts (43% vs. 14% of male directors). These findings may suggest that some board members may be resistant to change or may perceive that there is not a sufficient pool of qualified female board nominees.

Potential benefits of board gender diversity

Recent studies indicate that companies with gender-diverse boards have higher earnings, lower audit fees, lower likelihood of financial misstatements, favourable stock market reaction to the appointment of female board members, and better communication with stakeholders. Board gender-diversity advocates argue that more diverse boards improve board decision-making processes and increase financial reporting quality by broadening the perspectives and talent pool on boards.

On the other hand, some critics argue that mandating board quotas might de-emphasise the importance of qualifications for board service and lead companies to replace capable directors with new directors with less experience and expertise.

Women appointed to S&P 500 board positions are more qualified and more likely than male counterparts to have external credentials, studies show. In sum, companies may find that women bring unique perspectives to the board.

Behavioural and psychological studies suggest that men and women have differences in work styles and communication that appear to carry over to the boardroom. Specifically, previous research indicates that women are better monitors; are less tolerant of opportunistic behaviour (see the chart, "Risk in the Eye of the Beholder"); are more likely to develop trust relationships; promote information sharing; improve debate and decision-making processes; think more independently; and are more civil and sensitive to other perspectives. A report by International Finance Corporation, Women on Boards: A Conversation With Male Directors, which features interviews with multiple male directors from a wide sample of international corporate boards, corroborates these findings and suggests that male directors generally perceive that female directors encourage more objective discussion, bring energy to the board, focus on strategy as well as ethics and conduct, and are more prepared for board meetings.

Risk in the eye of the beholder

However, some studies suggest that adding female directors may have no effect on firm performance, or may actually diminish firm value for companies with strong corporate governance, arguably through over-monitoring and decreased board cohesiveness. Thus, it may be more appropriate to encourage the addition of women to boards of companies with weaker corporate governance.

Recommendations for women considering board service

Women in the accounting profession may find increasing board opportunities because of their financial expertise. Sixty-four per cent of S&P 500 companies are prioritising the recruitment of women as new board members, according to Spencer Stuart. The priorities next on the list are active CEOs or COOs (63%), retired CEOs or COOs (58%), minority candidates (55%), and those with financial expertise (55%) or a global perspective (55%).

Despite this emphasis on recruiting, women may need to take steps to overcome male-dominated director networks. Indeed, Nancy Calderon, KPMG Global lead partner, and Susan Stautberg, CEO, co-founder, and co-chair of WomenCorporateDirectors (WCD), in their book, Women on Board: Insider Secrets to Getting on a Board and Succeeding as a Director, suggest that women need to be proactive and strategic in their search for board positions rather than waiting to be recognised for their talents.

Carol C. Bishop ( is an assistant professor of accounting and MBA director at Georgia Southwestern State University. Robert M. Wilbanks ( is an assistant professor of accounting at Tennessee Tech University. Anne M. Wilkins ( is an assistant professor of accounting at the University of Tennessee—Chattanooga.

Board diversity by country

Quota markets
Non-quota markets
US markets

Source: ISS QuickScore. Calculated based on total number of female directors divided by total number of directors.