Increase the Number of Women on Corporate Boards

This article was republished with permission from Michael Volkov’s Corruption, Crime & Compliance.

Corporate Boards need more women.  That is a simple statement, backed by research and evidence that corporate Boards with more women are more profitable.  I have written about that in the past.

A recent study found another benefit from increasing the number of women on a corporate Board: women reduce the occurrence of fraud.  In fact, the new study found that the optimal percentage of women on Boards is 50 percent.  A copy of the study is here.

Companies face significant risks of fraud.  Shareholders suffer significant losses from fraud and misappropriation of funds.  Bribery is just one type of fraud – there are many other kinds.

The hypothesis from the study is that women are more ethically sensitive.  I am not sure such a generalization is appropriate, because women can commit crimes and misconduct.

The study is based on an analysis of Chinese companies over a 10-year period and found that male-dominated Boards were more likely to engage in fraud than Boards with greater gender diversity.  That is a significant finding.

Gender diversity on a corporate Board increases Board interactions and discussions of issues – what an important finding!!!  Corporate Boards that value Board member interaction and discussion tend to perform better.  Gender diversity has a direct impact on Board consideration of a diversity of views.

Interestingly, the study found that increased discussion led to greater conflict, less trust, increased scrutiny and ultimately less fraud.  In the end, that means better Board performance.  Conflict does not necessarily result in decreased performance; on the contrary, it results in greater awareness and scrutiny of business practices and operations.

Companies around the globe, however, continue to ignore the importance of increasing the number of women on corporate Boards.  The United States averages a paltry 15 percent of women on U.S. corporate Boards.  China and Australia are at 10 percent.  Germany has a mere 5 percent presence of women on corporate Boards.  Japan ranked the lowest, with less than 1 percent participation by women on corporate Boards.

Norway and other European countries are starting to mandate quotas for women on Boards.  I am not sure that is the right solution, but corporate leaders need to wake up and focus on this issue.

As women increase their roles in senior management positions, corporate Boards need to improve on gender diversity.  The dual presence of women on corporate Boards and in senior management positions leads to improved financial performance, especially in those markets involving products and services purchased or used by a significant percentage of female consumers.  See studies here and here.

A specific benefit cited in studies from women Board members is improved performance in monitoring corporate operations.  See here.  The implications of this finding are particularly significant in the current enforcement environment.  Corporate Boards are under increased enforcement focus and there is a need to respond to such a risk by exercising increased monitoring and supervision.  One effective way to do this: increase the number of women on corporate boards.