Board leadership positions elude diverse directors
What are the Research Questions?
The good news is that the percentage of female and minority directors has substantially increased in the past 20 years. The bad news is that we still have a lot of work to do. It turns out that more diverse boards come with a host of advantages for the corporations they represent. Therefore understanding and working towards more diverse boards is crucial moving forward. In an effort to better understand corporate diversity, this study examines the extent to which women and minorities serve in leadership roles on corporate boards, specifically as nonexecutive chairman of the board, lead director, or chair of a major board committee (audit, compensation, nominating, or governance).
The authors ask the following questions:
What are the Academic Insights?
By using the allocation of leadership appointments within the corporate boardroom as a laboratory to explore the labor market effects of gender and race, the authors study a large sample of nonemployee directors on US corporate boards from 2006 to 2017, which includes 126,044 director-firm-year observations representing 19,686 individual directors serving at 2,254 unique firms.
They find the following:
The authors perform robustness checks to control for omitted variables and self-selection biases and continue to find that diverse directors face challenges in obtaining board leadership positions. It is the first to explore the implications of race and gender following the initial appointment to the board. It highlights the importance of having women or minorities in positions of leadership for promoting equity among employees.
Why does it matter?
This study is interesting because it points to several areas of concern with regard to board representation. Diverse directors stand out from their peers in terms of academic and professional credentials, possess more outside board and committee experience, and enjoy greater support from shareholders in director elections. Despite all of this they remain less likely to be appointed to key board leadership positions. We must do better!
The Most Important Chart from the Paper:
We explore the labor market effects of gender and race by examining board leadership appointments. Prior studies are often limited by observing only hired candidates, whereas the boardroom provides a controlled setting where both hired and unhired candidates are observable. Although diverse (female and minority) board representation has increased, diverse directors are significantly less likely to serve in leadership positions, despite possessing stronger qualifications than non-diverse directors. While specialized skills such as prior leadership or finance experience increase the likelihood of appointment, that likelihood is reduced for diverse directors. Additional tests provide no evidence that diverse directors are less effective.
This content was originally published here.