Why all companies should have women on their boards

With women on their boards, ‘they’re probably spending more time evaluating the deals’

Recently, women have been making strides towards workplace equality and are showing no signs of slowing down. As men move over to make room for an ever-growing female presence, more and more researchers are interested in how this changing landscape will impact the day to day operations of businesses in our country.

Notre Dame researcher and professor of Management, Dr. Craig Crossland, was particularly interested in examining whether an increase in female corporate board representation impacts merger and acquisition activity between large public companies.

He, along with equal co-researchers and authors Guoli Chen and Sterling Huang, recently published a study in which they evaluated over 3,000 M&A deals over the course of 12 years and found that an increase in female board representation actually decreases overall merger & acquisition activity for public companies.

We got the chance to speak with Dr. Crossland about his work, his motivations, and the implications of his findings for the future of the co-ed corporate world.


Can you tell us a bit of background information, as well as your motivation for conducting the study?

There’s a fair bit of work that we’re seeing in the last few years on the general topic of what happens if we increase the percentage of female representation in strategic leadership. That includes studies like, what happens if we have a female CEO, when are we more likely to see female CEOs, what’s the impact of that occurring. Most of this work looks at female board representation. The percentage of women heading up large companies is still very low. But there is a reasonable percentage, and it tends to be growing, in terms of females on corporate boards.

One of the challenges with a lot of the work in this area is that, somewhat understandably, people want to go straight to the bottom line. They want to say, well if you have more women or if you have fewer women, does this make the company do better or worse?

It’s a very good question, but it’s one that’s really hard to answer, mainly because there’s just so much that’s going on in between the board characteristics, the board structure, and the eventual term performance. It’s just quite hard from a statistical or econometric perspective to be able to have good inferences about what the causal impact of female representation on eventual performance is.

So what we wanted to do was to say, well, can we at least look at an intervening step? Could we say, can we get a pretty good, robust answer to the question of, how do firms with more female representational boards act differently than firms with lower female representation?

And that, I think, is a more manageable question. Is there a way of figuring out what happens when we see an increase in female corporate board representation in terms of the strategic actions the firm takes?


What qualifies as corporate, and how did you go about selecting your sample?

 Our sample is the US S&P 1500, so they are all pretty large, public companies. They’re economically important, and because there’s a lot of data on these populations, we’re able to gather data on the variables that we’re interested in. If you were able to get the data on something comparable in educational boards or non-profit boards, we think you would probably find similar results.

We gathered data from a database called the SDC, which is the Securities and Data Corporation database. This contains information on pretty much all of the major deals and major acquisitions that we see in the population we considered, and so we were able to gather data on a lot of different things. We could look at the date of the acquisition, the size of the acquisition, and you can gather a fair bit of information on the nature of the deal.

So what did you find?

As you increase female board representation, we tend to see that the firms’ acquisitiveness goes down. So we see that firms do fewer acquisitions, and for those firms that do acquisitions, those acquisitions tend to be smaller.

We compared a firm with low female board representation and a firm with relatively high female board representation–now in our sample, that means going from about 0 female directors to about 2 female directors–and the economic impact of that change is associated with a reduction of about 18% in the number of acquisitions and a reduction of about 12% in terms of the size of the acquisition.

And in our paper, we talk about that being associated with the mean firm showing a reduction of $97 million dollars in terms of M+A activity in a particular year.

So what does that exactly mean? Can you interpret those results for us? 

Now, where it gets a little tricky is why this occurs. In our study we advance what we think is a reasonable explanation, and we base that on a lot of work that exists on intra-group dynamics.

One of the things we tend to do as humans is divide world into in groups and out groups. For example, if you’re sitting in a class at Notre Dame, and half that class starts wearing red hats and half that class starts wearing blue hats, then very quickly you start thinking in terms of red hats and blue hats. And you think, ‘that’s such a red hat comment,’ or ‘that’s such a blue hat thing to say.’

We’re sort of hard-wired to think in terms of these different groups. Some of the things that trigger that most strongly are powerful, fundamental, salient differences between us. So the obvious ones are things like gender, like race, like age cohorts. We tend to prefer our in-groups. We view our in-groups more positively, we gravitate toward other members of our in-group, and we tend to disregard our out-groups a little bit.


So what happens when you get two salient sub-groups together within an overall group like a board, that’s going to change the nature of the discussions a bit because you tend to want to support those who are like you and you are not as confident in the opinions of the out-group, and so what that ends up resulting in is a more thorough discussion. You’re less likely to see things like group-think, you’re less likely to see very fast decisions or decisions that haven’t been considered in detail.

What seems to happen in terms of mergers and acquisitions is that it slows down the likelihood of these things occurring. So if you have a homogeneous group, maybe these issues wouldn’t be raised. But in a heterogeneous group, there are likely to be other problems that are identified. We tend to find the discussions are a bit more lengthy, a bit more comprehensive, a bit more thorough, often more contentious, and so I think what’s happening is when you have this more heterogeneous group where men and women are represented, it means that they’re probably spending a little bit more time evaluating the deals.

One way to interpret our results is just to say that women are more risk-averse than men. Now, that’s probably reasonable if we look at the population as a whole. There’s a fair bit of work which suggests that in general, women tend to generally be less risk-seeking than men. As a simple example, if you look at all the “fail” videos on Youtube, you see a lot more men than women jumping off things that they shouldn’t.

But it’s very hard to extend that to the C-Suite. It’s very hard to extend that to the upper echelons of an organization.  If anything, it seems that female strategic leaders, directors, and executives tend to be a bit more like male strategic leaders than they are like female representatives of society generally. So we don’t really think that the results we find are because female directors are more risk-averse.

Just to reiterate, we feel pretty confident in the result. The result itself is that as you raise female board representation, you’re likely to reduce acquisitiveness. What we’re not so sure about is exactly why this occurs. From our perspective it’s somewhat speculative, but we think that it’s reasonable to surmise that the nature of the intra-group processes is different.

What kind of further research is needed in order to gain a better understanding of this phenomenon?

There are some benefits to looking at a very large sample. What’s nice is that we can say, this is a phenomenon that seems to be occurring across a lot of companies. So we looked at over about 3,000 acquisitions and a lot of firm years of data. But the drawback of a sample like ours is that it’s not possible to get inside all of these boards to evaluate precisely why is occurs. My comments about why this is happening have to be somewhat speculative. We would hope that in the future, other people are able to study this in a little more detail within individual boards, so maybe they could expand on that.


Thanks to Dr. Crossland and his colleagues for their insightful work. Mendoza juniors, look out for Dr. Crossland in your Strategic Management courses this fall!