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I am a M.A. in industrial/organizational psychology. Most of my experience has been in human resources and change management. My passion lies in employee assessment, organizational development and employee opinions. Website: www.IanMondrow.com LinkedIn Profile: http://linkd.in/drBYoC

Tuesday, January 18, 2011

Organizational Predictors of Women on Corporate Boards

Summary by: Ian B. Mondrow, M.A.

Diversity is crucial for organizational survival. Previous research has demonstrated that diverse teams often generate more alternative solutions to problems as a result of their increased information search and different perspectives. More specifically, gender diversity has been found to increase creativity within the groups. While the positives outweigh the negatives, diversity does have its downfalls. There is the risk of decreased communication, slow decision making, high levels of conflict and narrow-mindedness. Diversity's success thrives on the leaders of the organization and their ability to demonstrate an open mind.

Men have always have an advantage in the business sector and it is easier for men to grow to executive positions. It is not uncommon for men to ride the glass escalator while women encounter the glass ceiling, or the inability to grow past a certain position. In 2005, 37% of the managerial workforce was composed of women but only 14.7% held board seats in Fortune 500 companies (Catalyst, 2005 as cited by Hillman & Cannella, 2007). Due to this small distribution, Hillman & Cannella (2007) decide to examine the effects of having a female presence on corporate boards.

The researchers utilized public filings from 950 firms and 9,722 firm-wide observations from 1990 to 2003. The dependent variable for the study was the presense of women on a firm's board. If one or more women were on a company's board of directors, then it was coded as "1". Otherwise it was coded as "0".

Odds ratios were used to test a series of hypothesizes. This represents the degree of change that the likelihood of the dependent variable  as a result of a one-unit change in the independent variable. Odds ratios greater than 1.00 indicate a positive correlation between the variables. Anything below a 1.00 signifies there is no relationship.

44.21% of the firms did not have female representation on their board. In additional, the odds ratio analysis revealed significant results. An increase in annual sales is found to increase the likelihood of female representation on a directors board by 19.2%, odds ratio = 1.19, p < .001 (Hillman et. al., 2007). Industries with higher amounts of female employees had a relationship with the presence on boards as well, odds ratio = 1.01, p < .05. Diversity within an organization was found to not have an impact on female representation. Organizations that have females on their board of directors were likely to encourage related companies to include women on their boards as well, odds ratio = 1.09, p < .001. Organization age and number of directors were also found to be successful predictors but were not as statistically significant.

While the study findings are not 100% proven, it does demonstrate the presence of relationships between female representation on the board of directors and other factors. Annual sales, "woman-friendly" industries, and competing organizations with female directors may influence the gender composure of an organization's board of directors.

Times are changing and diversity is crucial for an organization's growth and competitive nature. This study shows that organizations are more likely to have a diversified board of directors based on their employee demographics. In addition, if their competition has female representation on their board, they are more likely to encourage the participation of women. I personally believe that an organization should strive to create a diverse board of directors so that a variety of demographics are represented. This gives each group of people representation and increases the likelihood that voices are heard.

Diversity on the board of directors is also crucial for talent management. People are more likely to join organizations where they share similarities with others. Board of directors are often advertised on company websites and therefore, it is easy for candidates to see what demographics are present. For instance, a woman may be discouraged to apply for a position at an organization if she notices there are no female officers. She may fear  sexual harassment, lacking a voice or the chance that she may be discriminated. This is not true for every individual but cases of this exist. Encouraging diversity within a board of directors can reduce the likelihood that this would occur.

It is best stated in one sentence: Diversity = Innovation = Success

Source: Hillman, A.J. & Cannella, A.A. (2007). Organizational predictors of women on corporate boards. Academy of Management Journal, 50 (4), 941-952.

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