The Research Brief is a short take about interesting academic work.
The big idea
U.S. counties where people are more likely to vote and engage in professional and social associations tend to have more women on the boards of local corporations, according to our new peer-reviewed study. Moreover, we found that women in these communities are more likely to be appointed as chairs of influential board committees.
To reach these conclusions, we studied nearly 3,000 publicly listed U.S. companies, representing more than 90% of stock market equity. For each company, we collected financial data from 2000 to 2018 on company size, growth, risk and performance, as well as details on the composition of their board of directors, such as their size and the percentage of female members.
Our data showed that while the overall share of women on corporate boards is very low, there is considerable variation across the U.S. In 2018, a quarter of companies in our database didn’t have a single female board member, and just under 100 had at least as many women as men on boards.
Prior studies have suggested that regional policies or barriers might explain the differences. We hypothesized that a concept sociologists call “social capital” might be a factor. Broadly speaking, social capital refers to how people in a society work together to achieve common goals, which in turn can build trust, improve local governance and address social problems like poverty.
So for each company in our database, we also pinpointed the U.S. county in which it has a headquarters. Then, for each county, we collected data on population growth, percentage of women in the workforce, median household income and age, and religiosity and average level of education of local residents.
To measure social capital, we collected county-level data on voter turnout, U.S. census response rates and a gauge of how many residents are likely members of nonprofit and social organizations such as churches, business associations and even bowling teams. Counties with greater turnout and membership levels got higher social capital scores.
Consistent with our predictions, we found that companies located in counties with more social capital also tended to have more women on corporate boards. Moreover, businesses in counties that scored among the top 20% in terms of social capital were 1.5 times more likely to have at least one woman on their boards than those in the bottom fifth.
We also found that companies in high-capital counties were more likely to put women in charge of key decision-making committees, such as ones that oversee audits, compensation and executive and board nominations.
Why it matters
Female participation in labor markets saw tremendous growth in the 20th century.
At the same time, women experienced growing representation on corporate boards, from virtually none in the early 1900s to about 17% in 2018, according to our data. Still, there’s clearly a long way to go to achieve gender parity in corporate boardrooms – a key pillar of power and influence in America.
While some countries – and U.S. states – have introduced gender diversity targets or quotas to increase the share of women on corporate boards, our findings suggest there may be other ways to achieve the same result. That is, policymakers and others keen to put more women in corporate board seats might consider focusing some of their efforts on encouraging more civic participation at the local level.
What still isn’t known
Social capital helps explain some of the variation in the share of women who sit on corporate boards, but there’s still much researchers do not know about why one company has more women than another – within a county, for example.
In addition, more research could be done on social capital and how it affects other corporate governance mechanisms, such as CEO compensation.
Siri Terjesen, Associate Dean, Research and External Relations; Executive Director, Madden Center for Value Creation; Phil Smith Professor of Entrepreneurship, Florida Atlantic University; Hanna Silvola, Associate Professor of Accounting, Hanken School of Economics, and Mansoor Afzali, Assistant Professor of Accounting, Hanken School of Economics