Gender Diversity and Inclusion in Finance

4 mins read · 2021
Claudia Girardone, Sotirios Kokas, Geoffrey Wood

Workplace Culture · Board and Leadership · Gender

This is a summary of “Diversity and Women in Finance: Challenges and Future Perspectives” by Girardone, Kokas, and Wood (2021). The article explores gender in finance and highlights the need to understand much broader challenges in the firm's role and how it is governed in a world experiencing interconnected social and economic change, reflecting both internal dynamics and wider ecosystemic ones.

"Diversity in all its form has a positive impact on the business. This is where the Board can lead from the top." Dame Inga Beale, Former CEO Lloyds of London (Beale, 2019).

Summary

This paper explores the main forces impacting diversity and the role of women at senior management and board level in finance. In addition, a common strategy used by authors to study diversity is by offering detailed research examining board composition, corporate social responsibility, and external corporate governance. The method used for this study mainly focuses on surveying empirical papers that employ quasi-natural experiments and textual analysis to confirm the interdisciplinary nature of diversity. The authors further focus on addressing gender differences in decision-making and acknowledge that as diversity goes far beyond gender, much research still needs to be done. 

Key findings

According to Bloomberg (2020), only 4 percent of companies release complete data about their workers' race and gender. In addition to being underrepresented in executive committees, women are subject to significant gender differences. For example, Field et al. (2020) research on directors' leadership gap and qualifications show that female and minority directors are significantly less likely to serve in leadership positions despite possessing more robust qualifications than non-diverse directors. As has been previously reported in the literature, women need to hold at least three board seats to have a "critical mass" and avoid token representation (Kanter, 1977; Terjesen and Sealy, 2016), and that diversity without inclusion is not enough (Sherbin and Rashid, 2017).

Does diversity in the boardroom improve firms' outcomes? A recent study by Ahern and Dittmar (2012) finds that firm value decreases following the introduction of the 40 percent gender quota for directors in Norway. The research discussed that quota results in the appointment of younger and less experienced women directors in the boardroom, which negatively influenced firms' performance. To bridge these opposite views, we should consider Kanter (1977)'s critical mass theory, which suggests that once a certain minimal threshold of a gender-balanced group is reached, the board composition will enhance performance, resulting in better outcomes. A recent study conducted by Joecks et al. (2013) concluded that gender diversity and firm performance have a non-linear relationship (U-shaped link) and need a critical mass of 30 percent of women on boards to observe a positive association with performance. Arnaboldi et al. (2020) found evidence that female directors are more influential in reducing misconduct when they reach a critical mass. This suggests that diversity, combined with inclusion, brings positive business outcomes.

Implications

The drift toward regulating gender diversity in boardrooms drives a pragmatic interest in gender diversity in the boardroom. The research gives a holistic overview of various perspectives on gender diversity, building a base for future studies that highlight much broader challenges in understanding the role of the firm and how it is governed in a world undergoing interconnected social and economic change, reflecting internal dynamics and wider ecosystemic ones.

Takeaways

Companies with greater gender diversity perform better, therefore the commitment to diversity and inclusion makes clear business sense. Yet, women of colour are significantly less likely than men to attain their first promotion and are under-represented in leadership positions. The barriers and challenges mentioned above are faced by most under-represented groups of people across industries. More work needs to be done to achieve gender parity in the financial services sector.

References

Girardone, Claudia & Kokas, Sotirios & Wood, Geoffrey, 2021. Diversity and women in finance: Challenges and future perspectives. Journal of Corporate Finance, Elsevier, vol. 71(C).