Women in corporate boardrooms: do they matter?

A few years ago, my colleagues and I investigated how female board members of publicly listed Philippine companies fared in the cutthroat world of corporate leadership and management. The topic was broad enough to merit dividing into two more focused streams: (1) Have these female directors earned their spot in the boardroom by improving the accounting and market performance of their companies, or are they merely in the boardroom to help tick off boxes in the company’s gender diversity quota? (2) Did these women directors significantly lower the corporate risk-taking of their companies, assuming that women are more risk-averse than men are?

We were first motivated to investigate the issue of gender diversity in boards because we found it ironic that the Philippines, despite her matriarchal status, is lagging behind her peers when it comes to promoting women to corporate director positions. The Global Gender Gap Report 2021 showed the Philippines as the second country in the Asia Pacific and the 17th out of 156 countries in terms of closing the gender gap in economic participation, educational attainment, health and political empowerment. Despite this, we have made little progress in closing the gender gap in corporate boardrooms. In 2019, the average proportion of board seats held by women in the Philippines is a paltry 17 percent, compared with 14 percent in 2016, 14 percent in 2008 and 13 percent in 2003. Compare this with the global averages of 23 percent in 2019 and 15 percent in 2016, and you begin to see how glacial our pace is.

This slow progress is in spite of repeated recommendations by the Philippine Securities and Exchange Commission for boards in Philippine publicly listed firms to increase their number of female directors – a far cry from the mandatory gender diversity quotas imposed in the boardrooms of Norwegian and German firms. Regardless, the primary purpose of both these hard and soft regulations was to eliminate gender inequality in boardrooms and promote business reputations. It then behooved us to ask: “Apart from reasons grounded on social equality and business reputation, is there an economic rationale to appoint women into boards? That is, do women directors improve firm performance and lower risk-taking by management?”

Theoretically, yes. Social psychology theories argue that merely by virtue of their femininity, women firm leaders improve firm performance and decision-making because they are more harmonious, democratic and ethical in their leadership style, more prudent, risk-averse and less overconfident in their investment choices, better at multitasking, more likely to view power in terms of information dissemination rather than through force or coercion, and more likely to be stricter monitors of management than male directors are. But do these theories translate to actual findings on the ground?

As it turns out, findings of our research using hand-collected data from annual reports submitted by over 200 publicly listed firms over the period 2003 to 2014 indicated that women directors in Philippine publicly listed firms do not significantly outperform or underperform their male counterparts on the basis of several accounting- and market-based measures of firm performance. This lack of distinction in performance by the females is most likely due to either the scarcity of female directors (on average, only 14 percent of the boards in our sample had female directors) or, perhaps, the similar educational backgrounds of male and female directors, which narrows any gender-based competence or performance gaps.

Another potential explanation is that female Philippine directors were appointed to their position, not on the basis of their personal talents, but as “window-dressing” in response to societal pressures, thereby rendering their contributions to firm decision-making processes negligible. This last explanation seems especially likely because we observed majority of firms to have only one female director (70 percent of Philippine listed firms had at least one female director in 2014, but only 20 percent have three or more female directors). These solo female directors are widely regarded as “tokens” to satisfy gender diversity expectations by stakeholders.

But what about in terms of risk-taking? Contrary to the assumption that women are inherently risk-averse, we find some evidence that Philippine publicly listed firms with more women directors have higher levels of risk-taking. These firms tend to have higher levels of debt financing and lower cash holdings, which diminishes their ability to pay off their debts. Surprisingly, we also find that firms with more female directors, especially those with boards chaired by a woman, have less extreme year-to-year fluctuations in firm performance, which implies lower overall firm riskiness. All in all, these mixed findings suggest that women director appointments do not automatically translate to lower risk-taking.

So where do these findings leave us? In the end, our results merely indicate that there is no robust evidence that women directors impact firm performance or firm risk in either direction. At best, it seems as if women directors are no better or worse than their male counterparts when it comes to improving firm performance and firm risk-taking.

Against this background, policymakers must remain cautious when recommending increased gender diversity in the boardroom on the basis of improving the level of performance or risk-taking. Instead, enforcing board diversity must still be justified along the usual grounds of social equality, ethics and business reputation.

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Ailyn A. Shi is an Assistant Professorial Lecturer at the School of Economics of De La Salle University. Her research specialization includes corporate governance and corporate finance. She is currently taking her Ph.D. in Finance at Deakin University in Melbourne, Australia.