Governance and Ethics-Academic-Female Directors and Earnings Quality

SRINIDHI B, GUL F, TSUI J. Female Directors and Earnings Quality. Contemporary Accounting Research [serial online]. December 15, 2011; 28(5):1610-1644. Available from: Business Source Complete, Ipswich, MA. Accessed July 20, 2012.

According to the 2011Catalyst Census, only 16.7% (15.7% in 2010) of women sit on the board of directors of Fortune 500 companies. This number drops to 3% for women of color. The share of women’s board leadership in these companies is represented in the figure below:

2011 Catalyst Census: Fortune 500 Women Board Directors

Recently, the EU threatened to introduce quotas as companies failed to add female corporate board members. Only 13.7% of board seats in the EU belong to females (Bloomberg). In this same light, Norway has legislated for a 40% board representation for females or penalties for noncompliance. We observe an insurgence of advocacy groups for more females to the board of directors of major corporations. There was an extensive coverage in the U.S. media when Facebook and Zynga appointed Sheryl Sandberg and Ellen Siminoff respectively, as their first female Board members. Is the advocacy for a more gender-diverse board of directors justified? Is there any empirical evidence that supports gender-diversity on the board of directors as an added value to the corporation? 

Bin Srinidhi et al, in their article female directors and earnings quality, present empirical evidence that supports better corporate performance linked to a gender-diverse board of directors.  Using a conceptual framework with the board of directors as an important part of corporate governance, the authors show that female directors improve board governance which in turn improves the quality of earnings. They further suggest that female participation in the board of directors will increase firm’s reporting and increase investor confidence in financial statements (Srinidhi et al). The findings of this article back previous works on the impact of female participation on the board of directors to improve corporate governance. Recent publications suggest that female directors exercise more independent thinking, improve monitoring (Adams et al 2010) provide a better oversight over managers (Adams &Ferreira 2009), promotes effective board communication to investors (Joy 2008), and those exposed to different experiences than men could enrich the discussion and improve the decisions made by the board (Hillman et al 2003).  

  

On the one hand, the article like many others falls into the “female advocacy” genre. In fact, do females possess a particular trait that gives them a better ability to improve corporate governance? If yes, the next question will be, can males also acquire these attributes? No study up to this point has shown that females possess a “unique” trait (that makes them improve governance and thus earning quality) that males don’t. The evidence and literature are all based on subjective factors. Indeed, governance is improved not by the fact that these are “females”, but by attributes when possessed by an individual (irrespective of the genre) will add value to its outcome. On the other hand, this article equips female advocacy groups with an empirical evidence for more support for a gender-diverse board of directors. This goes a long way in strengthening the gender-equality argument.  

For a long time, males have dominated the corporate world. This situation is quickly changing. We find females as leaders of some top companies (HP, Yahoo!). As more women become better educated, handle executive positions that expose them to great experiences, it is expected that the trend of women in boards of director will increase based on their skills and abilities. Even without advocacy groups, the prediction is that the gender gap in the board of directors will shrink in future. Corporations can’t afford to miss out on the enormous resources and abilities possessed by “modern females”.