Diversity begets diversity? The effects of board composition on the appointment and success of women CEOs
Introduction
In the face of internal and external pressure to increase demographic diversity in work organizations, firms have introduced a variety of pro-diversity employment measures including diversity training, mentoring and networking programs and targeting measures (Dobbin, 2009, Kalev et al., 2006). Scholars have followed these trends in an effort to analyze the impacts of demographic diversity on organizational composition and performance, leading to substantial growth of this field. However, findings on the effect of diversity on organizational outcomes remain inconsistent and inconclusive.
Some studies conclude that demographic diversity among leadership ranks reduces segregation and increases pay equity and mobility opportunities for women and minorities (Bilimoria, 2006, Carter et al., 2003, Carter et al., 2010, Cohen and Huffman, 2007, Skaggs et al., 2012, Stainback and Kwon, 2012, Terjesen and Singh, 2008). Scholarship specific to board diversity also finds that diverse boards are more transparent and accountable, communicate more effectively, implement innovation more successfully and enjoy better reputations compared to firms without diverse boards (Bear et al., 2010, Brown et al., 2002, Fondas and Sassalos, 2000, Miller and Triana, 2009, Torchia et al., 2011). Others, however, conclude that diversity increases conflict, intragroup competition and turnover, and reduces cooperation, morale and communication and ultimately weakens performance (Amason, 1996, Eisenhardt et al., 1997, Hogg et al., 2012, Pelled et al., 1999, Williams and O’Reilly, 1998).
The degree of disagreement and debate in this field led the authors of a recent paper to conclude that “any dimension of diversity that has been investigated… .has been associated with inconsistent results” (van Dijk et al., 2012, 39). Difficulties reaching consensus are due in large part to the under emphasis on identifying the compositional factors that mediate the relationship between diversity and firm outcomes (see van Dijk et al., 2012). Generally speaking, research in this field has failed to sufficiently theorize the compositional mechanisms that mediate the effect of diversity on firm performance and the appointment of women to top leadership positions.
In this study we develop and test compositional mechanisms that we predict will determine the likelihood women are appointed to CEO and the likelihood that firm performance will improve under their leadership. Specifically, this study asks under what conditions does board diversity support the appointment and success of women CEOs? We predict that the appointment and success of women CEOs will be dependent on the particular demographic composition of the board of directors and the relative influence of women board members. The primary function of a company’s board of directors is to appoint company leaders and oversee their leadership progress. There is even growing evidence that boards can also influence corporate strategy and long-term corporate planning (Demb and Neubauer, 1992, Matsa and Miller, 2013, Westphal and Zajac, 1995). Given the function of boards, it is likely that board composition significantly impacts CEO appointment and success.
Our analysis relies on a unique data set of all Chief Executive Officers (CEOs) and Board of Directors (BODs) in Fortune 500 companies over a ten-year period. Our research responds to calls to better theorize the mechanisms that determine the effect of leadership diversity on firm outcomes, including performance. Though profitability is not the only measure of leaders’ impact on firms (e.g., Cook and Glass, 2015a, Cook and Glass, 2015b), scholars routinely use firm performance as a proxy for leadership effectiveness and success (see Hambrick and Quigley (2014) for a review of this literature). This work contributes to and advances the field by testing the effect of specific mechanisms on appointment and performance of CEOs who are numerical minorities. Our data set includes detailed information on the gender and age composition of the CEOs as well as all board members, the relative influence of women board members as measured by the interlinks they have with other Fortune 500 boards, and firm performance outcomes over the short, medium, and long term. Overall, we find that board composition affects the likelihood of a woman being appointed CEO. We also find that the proportion of women on the board helps to enhance firm performance for women CEOs. These findings provide important new insights concerning the role of diverse boards in the support of and the performance of non-traditional leaders at the highest organizational levels. We conclude that board diversity is critical for the success of women CEOs, and increasing board diversity should be central to any organizational diversity efforts.
Section snippets
Barriers to women leaders’ appointment and success
Previous research suggests that promoting women to leadership positions can be an effective means of increasing diversity throughout an organization (Skaggs, 2008, Stainback and Tomaskovic-Devey, 2009). For instance, scholarship on organizational mobility has long emphasized the importance of strong female or minority mentors in promoting the careers of junior colleagues from underrepresented groups (e.g., Bell and Nkomo, 2001, McGuire, 1999, Vallian, 1999). Research in organizational
Support for women leaders’ appointment and success
Given the barriers women leaders face, contextual factors engendering support are critical in both their appointment to CEO and to their post-promotion success as CEO. The ability of numerical minority leaders to enact positive organizational change depends on two compositional factors: (1) the presence of multiple numerical minority members occupying positions of authority; and (2) the relative influence of numerical minority leaders (Cohen and Huffman, 2007, Cotter et al., 1997, Nelson and
Procedure
To examine our research questions, we constructed a dataset of the CEO and the corresponding Board of Directors for all firms within the Fortune 500 for the period from 2001 to 2010. The money website from CNN (money.cnn.com/magazines/fortune/fortune500) was used to compile the complete list of companies appearing on the Fortune 500 during the examined years. CEO and Board of Directors’ names, gender, and age information were collected using several reference websites such as edgar.sec.gov,
Results
Our research examines two hypotheses with women leaders. First, whether a gender diverse board represented numerically or by means of influence will impact the likelihood of a woman being appointed CEO. And second, after that appointment, if that gender diverse composition will facilitate the leadership success of the female CEO. Correlations and descriptive statistics of the investigated variables are presented in Table 1.
Hypothesis 1 predicts that the board composition, measured by both the
Discussion
The goal of our analysis was to analyze the effect of board-level compositional factors on the appointment and leadership success of women leaders. Specifically, we analyzed the conditions under which board gender diversity supports the appointment and success of women CEOs. We predicted that as the power of women directors increased, the appointment opportunities and the leadership success of women CEOs would also increase. We tested these predictions using a unique data set of all Chief
Conclusion
Our findings suggest that board composition is critical for improving the likelihood that women will be appointed CEO and for the leadership success of those leaders post-appointment. The reverse conclusion is also supported: a lack of diversity on corporate boards limits women’s access to top leadership positions and limits the post-appointment success of these leaders. In the absence of genuine board diversity and/or the presence of influential women board members, women leaders are less
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The authors contributed equally to this manuscript. For convenience they alternate author order.