Diversity in the Corporate Boardroom
Written by: Aaron A. Dhir
Who governs the modern business corporation? Global statistics reveal the ubiquity of male-dominated business leadership, a fact that has caused heated debate in scholarly, policy, and practitioner-based circles.
In my new book, Challenging Boardroom Homogeneity, I explore the lack of gender representation in corporate boardrooms. A number of countries have pursued regulation in an effort to promote diversification. For some countries, this has meant passing quotas, which necessitate specified degrees of gender balance in boardrooms. In other countries, regulators have adopted the less interventionist approach of information disclosure. Under disclosure regimes, regulators ask corporations to publicly report on whether they seek diversity in varying levels of detail.
Challenging Boardroom Homogeneity is the first major empirical study of this shift to legal strategies. Little is known about the day-to-day operation of corporate quotas. To fill this void in our knowledge, I conducted in-depth interviews with Norwegian corporate directors, male and female, about their experiences under Norway’s controversial law – the very first quota on the books. In the United States, the Securities and Exchange Commission (SEC) requires corporations to report on whether they consider “diversity” in identifying directors and, if so, how. The agency, however, did not define “diversity” in its rule, leaving it to firms to give the term meaning. What does “diversity” mean to corporate America? I analyzed four years of S&P 100 disclosures to shed light on this question.
With regard to quotas, I was struck by the fact that a strong majority of the corporate directors I interviewed indicated their own personal support for the Norwegian law. These directors frequently spoke to how their views had evolved. Many reported that they were initially opposed, hesitant, or agnostic about quotas. It was only after seeing the law in action and directly experiencing its effects that they eventually came to endorse it. A number came to the realization that change in the boardroom would require legal intervention, given the dynamics of in-group favoritism and closed social networks that thwart diversity.
This finding is salient. Quotas, to be sure, are an imperfect means of achieving heterogeneity. But commentators who question the appropriateness of positive discrimination rarely root their concerns in the experiences of those who presumably matter the most — the directors who actually live under quota regimes. In order to understand and evaluate quota-based regulation, it is necessary to explore the lived realities of the board members it directly affects. How have they experienced this interventionist form of regulation? How does legally required gender diversity affect their economic and institutional lives?
On the disclosure front, my most important finding is this: In each year of my study, almost all firms complied with the SEC regulation by reporting that they consider diversity when composing their boards. That said, only about half actually defined diversity in terms of gender, race, or ethnicity. Most firms, when considering diversity without regulatory guidance, tend to discuss a board member’s experiential background, instead of his or her identity-based characteristics.
I argue in my book that the U.S. rule should be reformed and that the term diversity should be defined as including factors such as gender, race, and ethnicity. If well drafted, disclosure-based regulation may produce positive outcomes. But it can also be anemic if it leaves the regulated organization with too much room to maneuver.
The stakes are high in the international fight for gender equality in corporate boardrooms. As one Norwegian director told me, “[I]f…a new category of society shall be given power, someone will have to give away that power…. And that is not an easy thing to do.”
Read an excerpt from Challenging Boardroom Homogeneity here.