Study: Women on corporate boards help companies strike better deals

Canadian study shows companies with female directors bring down costs of acquiring other firms, make less risky bids

Mary Dove, an organizer of a "lean in" group, talks to women in New York City on April 16, 2013. The group is inspired by Facebook COO Sheryl Sandberg's book "Lean In," which seeks to empower women in the workplace.
Wix Lounge, Galo Delgado/AP

When it comes to building an empire, corporations would be wise to appoint more women to their boards of directors.

That’s because female directors appear to bring down the costs of acquiring other companies, according to new research from the University of British Columbia, and they also tend to make fewer overall acquisition bids than companies that don’t have women on their boards. That means women directors are avoiding costly mistakes that end up hurting shareholders, the researchers say.

In an analysis of all of the mergers and acquisitions activities of S&P 1500 companies between 1997 and 2009, each female director present on a company’s board meant it spent 15.4 percent less on acquisition bid premiums — that’s however much a company pays for an acquisition target over and above the value of all that target’s stock shares. 

And what’s more, each woman director on a board was associated with 7.6 percent fewer acquisition bids made altogether, a signal that the women directors made shrewder and less risky business decisions, according to study co-author Kai Li, a professor at the UBC’s Sauder School of Business

“To make a good deal for your shareholder is to buy low,” Li told Al Jazeera in a telephone interview. “And our study shows that women directors are associated with buying low.”

While high-powered women like Facebook chief operating officer Sheryl Sandberg and Yahoo! president and chief executive Marissa Mayer are visible examples of women taking on top leadership roles in business, women are still vastly underrepresented on corporate boards, making up just 18 percent of the directors at Fortune 500 companies.

That does, however, represent a jump up from 16.4 percent in 2011, according to numbers crunched by 2020 Women on Boards, an advocacy group aiming to bring more women into corporate governance.

Recent research has pointed to the positive effect that female board members have on company performance. For example, a 2012 report from the Credit Suisse Research Institute (PDF) found that, among the 2,360 companies it examined, those with at least one woman on their boards outperformed all-male boards in terms of share price performance.

Still, UBC’s Li said she sees a lot of women in undergraduate and graduate business studies, but “we don’t see women at the top,” she said.

So she and her team, citing past studies showing that women on boards more frequently take on monitoring roles, decided to analyze how gender might affect M&A activity — which requires board approval — among S&P 1500 companies.

They were also interested in Norway’s 2003 law requiring the boards of public companies to be made up of 40 percent women; a 2013 study from Northwestern University’s Kellogg School of Business showed that the firms affected by the quota spent more on labor costs and laid off fewer workers, ultimately leading to lower company profits.

Li’s team found a significant association between the presence of women directors at public companies and lower bid premiums, as well as a negative likelihood of bidding on other companies, which they said means “women appear to be less motivated by empire-building.” 

Why? Li attributes these differences to what she says is women’s tendency to be less overconfident than men, especially in times of uncertainty. Women directors are less likely to take on an acquisition unless they feel very sure that it’ll be good for shareholders, she said, and lower premium bids may be a result of more negotiation.

“It’s a call for more diversity in corporate decision-making processes,” Li said. “It’s a male-dominated business world, so [companies] really need to hear a different voice.”

Diversity 'just a good idea'

But business experts say the UBC research doesn’t necessarily mean that the differing M&A activity can be attributed to gender.

That’s because so many factors affect a company’s performance — from its size or age to the current economic environment — that it’s difficult to measure cause and effect of gender ratios, according to David Matsa, a finance professor at Northwestern’s Kellogg School of Business who spearheaded the studies about the effects of Norway’s gender quota.

For example, he said companies have been shown to appoint more women in executive roles at times when firms are struggling. “If you correlate firm performance and the gender of leaders, there are going to be factors pushing the firm into negative performance that aren’t due to leadership,” Matsa said in a telephone interview.

And David Larcker, an accounting professor at Stanford University’s Graduate School of Business and director of the school’s Corporate Governance Research Program, told Al Jazeera that while the conclusions drawn by the UBC study are “a bit of a stretch,” it doesn’t take an academic study to prove that diversity is good for corporate leadership.

“I don’t think you have to make the business case for diversity,” he said. “It’s just a good idea. Talent is always a scarce resource. What person that wants to create value would chop off half the people [from] the list?”

Larcker says that even though corporate America is finally taking steps to alleviate past discrimination against women, “there’s a long way to go.” Even in a socially liberal area like Silicon Valley, it surprises him when he sees companies starting out without female board members when they first go public. (A recent New York Times story about Twitter’s forthcoming IPO pointing out the company’s lack of women board members or investors spurred a contentious public discussion about corporate diversity.)

“High-level women were instrumental in the success of these companies. You would think that from the public relations standpoint, when forming the board, (including women) would be a natural thing to do,” Larcker said.

Indeed, Matsa said the lack of women in these high-level corporate board positions doesn’t have anything to do with a lack of supply of capable women to fill them. It may have more to do with networks, because men have established a far longer history of serving on corporate boards. “There are a lot of subtle ways in which it’s not about getting a job,” he said, “but about having people to talk to about how to handle the job.”

Regardless of cause or effect, Patricia Fletcher, a board member at Astia, a network that bolsters investment and support for women-owned startups, thinks the discussion of women on boards shouldn’t be so antiquated as to focus solely on whether their presence is a good thing or not.

“It’s really great that we’re starting to find out that yes, indeed, having more women on the board is better,” she told Al Jazeera. “But it’s not really a battle of the sexes. I think the paradigm needs to shift to an ‘and’ question instead of an ‘or’ question. We’re 50-50 here .... I would love to see the conversation shift.”

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