Bridge over ocean
1 January 2016 CFA Institute Journal Review

Appointing Women to Boards: Is There a Cultural Bias? (Digest Summary)

  1. Priyanka Shukla, CFA

Cultural factors can exert a systematic influence on the composition of corporate boards. The authors find that countries where traditional and stereotypical gender roles are valued and countries that readily tolerate inequalities in the distribution of power have significantly lower representations of women on corporate boards.

What’s Inside?

The authors investigate whether cultural attributes influence the proportion of women in board director positions. Recent studies from the World Economic Forum, Catalyst, and others have found a disproportionately low presence of women on corporate boards and that the rate at which women are being appointed continues to languish. The authors are interested in the fact that the proportion of women on boards varies among countries. They examine the reasons behind these differences and test whether these variations can be attributed to countries’ cultural differences.

How Is This Research Useful to Practitioners?

Using multivariate regression analysis, the authors investigate whether culture influences the proportion of women on boards. They find that some cultural factors are statistically significant, whereas others are not.

Significant cultural factors include the following. “Masculine” cultures are defined as those in which traditional gender roles predominate. This cultural factor has the greatest (negative) effect on the proportion of women on boards. Inequality between genders is tolerated in cultures with a larger power distance, and this cultural factor also has a significant negative effect on the proportion of women on boards. There is also a positive relationship with the proportion of women on boards in companies with a board chaired by a woman, a large board, and higher sales. The last three factors are included because of results from previous studies and the authors’ analysis finds these to be significant.

National codes of governance encouraging gender diversity did not appear to statistically significantly influence the proportion of women on boards. In addition, individuality (versus collectivism) preferences in society, uncertainty avoidance as a society, company size, and profitability are not found to be significant.

Company size and profitability are control factors that were chosen because of results from earlier studies. Additionally, previous studies showed that economic development alone does not create new roles for women and that political systems play an important role.

The authors’ descriptive data analysis reveals that roughly 8% of board directors are women. Norway, Sweden, Finland, South Africa, Israel, Denmark, France, Luxembourg, Belgium, and Spain have a higher-than-average percentage of female board directors. Lagging with below-average proportions of women in board director positions are Japan, New Zealand, Austria, India, Russia, Switzerland, Australia, Brazil, China, Germany, Hong Kong, Italy, Portugal, Singapore, the United Kingdom, Greece, Holland, and Ireland.

Although the United States, Germany, Mexico, and Poland are at or below average in the percentage of female directors, they have an above-average percentage of boards with at least one woman. In contrast, Japan, Australia, New Zealand, and the United Kingdom have the most all-male boards.

This research can help investment practitioners gain a deeper understanding of cultural systems and how they affect the proportion of women on boards and, perhaps, discover new opportunities to uncover value.

How Did the Authors Conduct This Research?

The dataset includes records from 7,300 public companies in 32 countries across Asia, North and South America, Europe, Africa, and Australia. The authors conduct descriptive, univariate, and multivariate regression analysis with the proportion of women on boards as the dependent variable. They control for factors known to affect board composition found in previous studies, including board size, firm size, profitability, industry sector, a woman chair, and regulation.

The authors use Hofstede’s definition of culture, which says that culture is the set of values, beliefs, principles, and attitudes shared by a group. Culture is defined by four parameters:

  • Power distance: The degree to which unequal power distribution is culturally acceptable, with a higher value indicating that greater inequality is tolerated
  • Individualism: The degree to which a society appreciates individual characteristics over loyalty to group values
  • Masculinity: A society with stereotypical and distinct gender roles
  • Uncertainty avoidance: The extent to which a society accepts uncertainty; a high value of this variable indicates low uncertainty tolerance, thus favoring a rule-oriented society

The authors conduct robustness checks by applying cultural proxies used by the Global Leadership and Organizational Behavior Effectiveness program. They conclude by outlining limitations of their study, including the need for more complex models.

Abstractor’s Viewpoint

The study contributes to a growth in investors’ understanding of the significant issues of gender diversity and cultural dimensions of corporate governance.

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