Gender Diversity and Corporate Governance

*Suwongrat Papangkorn, Pattanaporn Chatjuthamard and Pornsit Jiraporn*

### **Abstract**

Gender diversity in the workplace has been an issue receiving a tremendous amount of attention both in academia and in the popular press. The research to date has tended to focus on the obstacles to promotion of women at lower and middle management levels, often referred to as a glass ceiling effect. However, most research on the subject has been mainly restricted to the definition of gender, by biological determination, that is, male and female, rather than by social construction. This chapter addresses the impact of gender diversity leadership and firms' performance. In addition, it offers a synopsis of selected research examining the LGBT-supportive workplace policies and firms' outcomes. Further, the chapter identifies priorities for future research that can advance our understanding on this research area, and the broader field of financial studies, encompassing the growing interest in the boundaries between the economic, the psychological and the social areas.

**Keywords:** diversity, gender, corporate governance, corporate boards, board composition, LGBT-supportive policy

### **1. Introduction**

More than two decades after the United Nations' Beijing declaration and platform for action pledged to take the necessary steps to remove all hindrances to gender equality and the empowerment of women and LGBITQ+, support for gender equality is lacking effective action to boost women's representation at the tables of power. Although in year 2020 all the companies in the S&P 500 had at least one female director, women still only represent 28% of all board directors [1].

Gender diversity in the workplace can bring both benefits and costs to the firm. A voluminous body of literature suggests that board gender diversity brings unique perspectives to the boardroom (for example, see [2, 3]). If a diversified board can bring a broader range of backgrounds among directors, then a more diversified board will collectively possess more information and will have a higher chance of making better decisions. In addition, the diversity of the board can enhance the board independence, and consequently increased board diversity could lead to a better board monitoring function (for example, see [4–9]). At the same time, board gender diversity also gives a positive signal to stakeholders that the company cares about the societal diversity in their governance (for example, see [10–12]). On the other hand, a diverse board may cause higher decision-making costs in boards and increase the likelihood of conflicts and friction in boards [4].

Nevertheless, gender is much more than biological differences between male and female. It is socially constructed characteristics of men and women, such as norms, behaviors, and roles that a society considers appropriate for men and women. It varies from society to society and can be changed. Today, LGBT people are more accepted than ever. This is also true in the business world. Many companies around the world have started to create LGBTQ-friendly parental policy. Recently, several academic studies have also focused on LGBT-supportive policies. Prior studies find that LGBT-friendly policies provide both human-resources-related benefit and financial benefit (for example, see [13–19]). However, there is some evidence suggesting opportunity-seeking managers may use this policy for their self-benefit, particularly their compensation [20].

In the following sections, we review the literature on gender diversity in two key areas, which are theoretical perspective and impact. Section 4 presents a discussion on why there is inconclusive evidence on the relationship between board gender diversity and a firm's performance. Following this, the chapter discusses current literature on LGBT-supportive policies. Section 6 suggests the direction for future research. Lastly, we end with the concluding remarks.

### **2. Gender may not identify as exclusively male or female**

Traditionally, the terms "sex" and "gender" have been used interchangeably, but their uses are becoming increasingly distinct [21]. In general, the term, "sex" often refers to biological differences between male and female. It is something that remains fixed, natural, unchanging, and consisting of a male/female dichotomy. On the other hand, gender is a social construction relating to behaviors and attributes based on labels of masculinity and femininity. Sometimes, a person's genetically assigned sex does not align with their gender identity. These individuals might refer to themselves as transgender, non-binary, gender fluid, or gender nonconforming. Thus, gender may not identify as exclusively male or female.

Although biological sex and the social construction of gender are not equivalents, the close association of gender and sex and the normative demands of conforming to sex-gender stereotypes for social recognition means that both the female sex and feminine gender are likely to be treated as equivalents and equally face discrimination. Furthermore, some also struggle to reconcile their sexual orientation with their gender. Thus, most researchers still use the proportions of male and female in companies as a proxy for the gender diversity, while others use corporate policies regarding gender non-discrimination policies as a proxy for working environment gender equality.

#### **3. Gender diversity and leadership**

*"In the future world we will have a lot of women leaders… Because in the future, people will not only focus on muscle, power, but they will focus more on wisdom. They focus on caring and responsibility."*

 *-Jack Ma-*

As the benefits of gender diversity become ever more apparent, companies are working to close the gender parity gap within the organization and try to gain benefits of gender equality across their organization. At the same time, gender equality in the workplace is also an important issue for policymakers. For instance, two years ago, California passed a law mandating that publicly traded companies based in

California are required to have at least three female directors on their board. Many countries in Europe also impose board gender quotas and propose policies requiring board composition disclosure [22].

Despite the social pressure on gender equality, a diverse range of academic literature does not explicitly develop a theoretical framework explaining the gender gap in leadership. At the individual level, theoretical perspectives tend to focus on the characteristics of directors and their stereotypes, while at the board level, theoretical perspectives tend to focus on group-level processes.
