New research says that having women at the board table helps implement effective governance systems, enhances collaboration, inspires organisational dedication and improves fairness in the workplace.
According to a study report by a group of Lincoln University academics, female leaders help increase productivity and are vital for instilling confidence and protecting shareholder interests.
Bringing greater diversity to corporate boardrooms has been a focus in parts of the world with regulatory reforms on promoting female directorships highlighting new evidence coming out the United Kingdom that female directors positively impact business investment decisions.
The report authored by three Lincoln University academics demonstrates to regulators, policymakers and stakeholders that appointing women to boards helps implement effective governance systems.
The report, by Dr Sanaullah Farooq, Dr Muhammad Nadeem and Professor Christoper Gan from Te Whare Wānaka o Aoraki Lincoln University, examines the link between boardroom gender diversity and investment inefficiency.
Taking a sample of UK businesses from 2005 to 2018, researchers examined the impact of female directors on the efficiency of capital investments.
“Important discussions take place on boards; diversity brings a range of perspectives and talent that synergises the board, leading to more well-rounded decisions,” Farooq said.
“There needs to be a raised awareness of giving women a fair shot at landing a seat on a board of directors.
“From our findings and others published, female directors encourage better business performance and governance, are less tolerant of poor managerial performance, make better investment decisions and are more transparent in disclosing information.
“Research suggests that women in management minimise corporate risks and improve corporate social responsibility.”
Following regulatory reforms in the UK to increase female representation on corporate boards, the study found that gender-diverse boards strengthen the financial monitoring of a business, improving decision-making, resulting in less under and over-investment.
Female directors improve the efficiency of capital investments through three channels, board dynamics, stewardship effect and information environment.
The dynamics of a board improve with female directors’ active participation in activities such as meetings and governance sub-committees where they seek discussion and clarity on the viability and rationality of investments.
“Forging productive relationships within a business sees female directors help align a chief executive officer’s interest with a business and by doing so, helps mitigate inefficient investment decisions.”
Female directors help create information-rich environments that raise confidence with stakeholders on the availability of profitable investments, resulting in the supply of capital being eased, Farooq said.
The study also found that corporate boards with three or more female directors have a more significant and positive influence on investment decisions because the women have a greater voice at the board table.
“By achieving critical mass, female directors can change boardroom dynamics and encourage policymaking.
“So, rather than tick-box compliance, aim to have three or more female directors for a more pronounced effect on financial decision-making.”
The study suggests promoting greater gender representation can be adopted across other countries, including New Zealand, and beyond corporate entities.
Similar findings are expected in non-listed organisations.
“Decades of studies show women leaders help increase productivity, enhance collaboration and inspire organisational dedication and improve fairness in the workplace.
“This is why legislation encouraging female representation at board level should be encouraged.”
