Women on Board: The Importance of Including Female Directors on Company Boards
In November 2019, a news story from California barely made a blip in the national headlines. The state is being sued a second time for enacting a law that would require corporate boards to include women. By 2020, public boards must include at least one woman. By 2021, any publicly traded companies with five board members must include two women on the board; companies with six or more must include three women.
Interestingly enough, the group suing California is doing so on the grounds that the law goes against the equal protection clause of the U.S. Constitution.
Why? Because it takes into account gender and assumes that people of different genders are interchangeable in the role of board member.
It’s true that men and women aren’t interchangeable. But their skills are complementary, and that’s why companies who include women on their boards demonstrate greater innovation than companies that don’t include female directors. Adding women to boards makes perfect sense and benefits both female executives and the companies for which they work.
Women on Board: Good for Businesses
Does including women on corporate boards of directors encourage a culture of innovation?
Recent research from the University of Virginia clearly says, “Yes.”
Ting Xu, a professor at the University of Virginia’s Darden School of Business, and Dale Griffin and Kai Li, professors at the University of British Columbia Sauder School of Business, examined a large global dataset that included over 12,000 companies spanning 45 countries. The researchers wanted to see if having more women serving on boards affected the rate of corporate innovation.
Their findings are intriguing and fly in the face of current thinking about the natural leadership styles of women. According to Xu, Griffin, and Li, companies with a better balance of men and women serving on their boards produce more patents, a sign of innovation.
Not only do they produce more patents, but the patents tend to be more creative and novel, with less spent on research and development, than patents at companies with male-only boards.
Flying in the Face of Gender Theory in Business
A common truism holds that women tend to be more cautious in business settings than men. Women are thought to be risk averse; men, risk-takers. As stress increases, the research claims, women take fewer risks while men take more risks.
However, that may only be true for certain kinds of risks such as financial risks. When it comes to risk-taking in the realm of ideas and innovation, women may be risk-takers, too. They may be more comfortable with risky moves in the realm of ideas and creativity than men.
Women Influence Innovation
Boards of directors do not directly create products. They aren’t likely to roll up their sleeves in the laboratory or huddle with the engineers to build on past research.
They do, however, exert influence over the direction of the company and among many things, the internal and external contracts a company signs. The net result of a board of director’s decisions can enhance or detract from a company’s propensity to innovate.
Xu, Griffin, and Li found that when boards included female directors, the boards tended to:
- Offer greater long-term orientation in CEO employment and compensation contracts, thus giving them more of a chance to encourage innovation;
- Tolerate failure, an important component of innovation (Edison’s 1,000 experiments to create a successful light bulb come to mind)
- Create a culture of innovation
- Attract greater diversity among employees and investors
All of these factors support a culture of innovation, which in turn, yields more patents. Patents add value to an organization and enrich it through monetary value as intellectual property and as an attraction to job seekers looking for a culture of innovation in their employers. It’s a win-win, a virtuous cycle that improves a company throughout every area.
California’s Law Might Be Good for Business
Which brings us back to California. Lawmakers clearly want what’s best for both women and for businesses in the case of requiring public companies to add women to their boards. Silicon Valley owes a great deal of its companies’ valuation to intellectual property such as patents. Adding women to the boards of tech companies, for example, may spur innovation and new patents, which adds value to California-based companies.
While the idealist in me wishes that women were invited to sit at the board table based solely on their business merits, the realist in me recognizes the need to mandate change.
Based solely on new research coming from the top business schools in the nation and based on a large global dataset, it seems logical to assume that including more women at the table means positive change rather than a grudging acceptance of female business leaders. Companies would be wise to embrace the move rather than fight it.
Illinois tried to enact similar legislation and compromised after significant resistance by requiring boards to share demographic data with the state about their members. California, facing two lawsuits, must overcome corporate skepticism as well. While laws may not be the answer, creative methods to encourage firms to add more female board members would be a win for all.
The California bill signed by Governor Jerry Brown came about as a response to the #metoo movement. It’s a misguided response to a long-standing problem in the workplace. Adding women to corporate boards won’t much to stop sexual harassment in business.
It will, however, infuse companies with a balanced mix of perspectives, of risk-taking and creativity, which can lead to more patents and higher profits. Dollars speak louder than words. Adding women to the boards of companies makes good sense for companies seeking to enhance their value as both a great place to work and a culture of innovation.
