Adding even a single woman to a board of directors leads to better corporate governance practices without requiring a critical mass of several women, according to a new study by a researcher at Simon Fraser University.
A report by business professor Judith Zaichkowsky concludes companies with even one woman on their boards of directors have stronger corporate governance ratings than those with no women. Companies with at least three women rank even higher depending on specific industry sectors, the study says.
Prof. Zaichkowsky said her findings suggest the presence of women on a board encourages a greater focus on board practices and behaviours related to good governance, even when they are a lone voice. She said the trend has been consistent in annual data she examined back to 2004.
While some academics and shareholder advocates have cited the merits of having a critical mass of at least three women on a board, Prof. Zaichkowsky said in an interview that companies should not conclude there is no merit in just adding a single woman if they have none.
"If you're a company with a board of six or seven people and some outsider is telling you half of your board members need to be female, what are you going to say? Absolutely not? So that's why I say it's better to nudge in with one."
The report, published in the International Journal of Business Governance and Ethics, found significant improvement in scores with one women, especially in traditionally male-dominated industries such as energy and mining where there appeared to be the most correlation.
"To call for quotas of three or more women to be on boards of directors of these industries, for which the total number of board seats averages about nine, is perhaps asking too much," the report concludes. "At this point in time, one woman on these boards may be all it takes to provide a better governed and maybe an even more stable company."
The report examines how companies in the S&P/TSX composite index scored in The Globe and Mail's annual Board Games ranking of corporate governance practices between 2004 and 2012. The Globe ranking looks at dozens of factors related to corporate governance practices in areas such as board composition, share ownership, compensation, disclosure and shareholder rights.
Prof. Zaichkowsky subtracted marks that were awarded on a question assessing whether there are women on the board so the marks would not be factored into the totals and skew the results.
The results showed a correlation between more women and better governance scores both overall, and when companies were sorted by size to control for the likelihood that larger companies could have more sophisticated governance practices, she said.
The presence of women on the board could be a signal that a company cares more about good corporate governance in many respects, and the presence of women is a result of that diligence, rather than the cause of the better governance. But Prof. Zaichkowsky said she believes it is equally logical to conclude instead that women are having an influence on the behaviour of the group.
"If you think about a group of males, and does their behaviour change when a female comes in – do they behave better – I think so," she said.
She said her research did not find a correlation between the number of women on boards and financial performance, and also did not show a correlation between women and higher rankings in an assessment of corporate social responsibility done annually by Corporate Knights magazine. There was not a big enough group of companies to look at individual industries for CSR trends.