Dr. Anja Kirsch School of Economics and Business, Management Department Women on corporate boards: Japan in a boards: Japan in a comparative perspective
Outline • Women on boards across firms and countries Women on boards across firms and countries • Director selection and the selection of women directors • The influence of corporate governance on director selection • The case of Japan • Data and methods • Analysis and results Analysis and results • Outlook: next steps 2
D Description: Looking at firms i ti L ki t fi Some research results: There are more women on boards of… S h lt Th b d f • Large firms • Small family firms y • Firms with large boards • Established firms • Firms in the service sector (banking, retail…) • Firms in industries with high female employment and a high proportion of female managers • • Firms with international institutional investors Firms with international institutional investors …but these results vary across countries See for example Hillman et al. (2007), Mínguez-Vera and Martin (2011), Nekhili and Gatfaoui (2013), Oehmichen et al. (2012) 3
Description: Looking across countries Description: Looking across countries There are more women on boards in countries… • • with greater gender equality in public life with greater gender equality in public life • in the economic sphere (with higher female labour force participation, greater female presence in senior management, a lower gender pay gap) • i in the political sphere (with more women in parliament) th liti l h ( ith i li t) • in education (with higher female participation rates in tertiary education) • with formal and informal institutions that facilitate women’s access to boards • with regulation on women’s board representation (quota and disclosure regimes) • with national cultures that score high on gender egalitarianism • with less gendered welfare policies (less maternity leave but more paternity leave and parental leave, with more childcare services) • With pressure for women’s representation on boards emanating from actors • stock exchanges, professional associations of company directors, lobbying groups, search and advisory firms and the media See for example Grosvold et al. (2015), Iannotta et al. (2015), Sheridan et al. (2014), Terjesen & Singh (2008) 4
Women on Boards (%) 2013 Women on Boards (%), 2013 Country Women on N Boards (%) Boards (%) companies companies A Australia t li 11.7 11 7 270 270 Canada 11.1 241 France 27.5 96 Germany 16.9 81 Italy 17.8 49 Japan Japan 1.4 1 4 368 368 Netherlands 17.9 37 South Korea 0.2 102 S Spain i 14.8 14 8 46 46 Sweden 28.9 50 Switzerland 10.5 68 United Kingdom 15.7 288 United States 15.1 877 5
How are board directors selected? Rational economic perspective: Social embeddedness perspective: • • Director selection attempts to meet the Director selection attempts to meet the • • Director selection is influenced by social Director selection is influenced by social governance and resource needs of the factors firm and its shareholders, reflecting their • Assumes that selection is affected by best interests best interests social connections; emphasizes • Assumes an efficiently operating labour negotiations between CEOs and market for corporate directors, views the incumbent directors over filling board market for directors as a meritocracy vacancies • Draws on agency theory and resource • Draws on concepts of homosocial dependence theory dependence theory reproduction, homosociality, homophily reproduction, homosociality, homophily and similarity-–attraction as well as the corporate elite In practice, director selection is carried out in a combination of these two perspectives. See Withers, Hillman & Cannella 2012 6
Why are women selected or excluded? Why are women selected or excluded? Rational economic perspective: Social embeddedness perspective: • Appointments are based on a prospective • Candidates’ social capital and networks, director’s ability to provide monitoring or CEO-board dynamics, and other social resources to a firm dynamics play a role in the selection process • Women enhance a board’s monitoring • Desire of current directors and CEO to select capabilities because they are more likely to candidates similar to themselves excludes be independent women • Women make boards more representative • Desire of directors as an elite group to of external stakeholders, especially women maintain social status and prestige excludes consumers and employees women (and other outsiders) • Having women directors provides legitimacy • Desire of CEO to avoid directors who will and conforms to emerging social norms closely monitor management excludes women (due to their independence) ( p ) • • Functionalist reasoning: firms that need Functionalist reasoning: firms that need more monitoring and links to certain • Hence: Boards with diversity among male stakeholders and legitimacy appoint women directors and where access to the elite is opening up and where CEO power is low vis- opening up and where CEO power is low vis- à-vis directors and shareholders appoint women 7
Director selection and corporate governance Research on director selection should consider how other governance mechanisms R h di t l ti h ld id h th h i influence the director selection process (Withers, Hillman & Cannella 2012, p. 267): • • Independence : independent/non executive directors may have different preferences for Independence : independent/non-executive directors may have different preferences for director selection than CEO and have power in negotiations with CEO • Corporate governance reform : changes in governance mechanisms may facilitate access to the corporate elite • Ownership concentration : owners with large shareholdings have power to enforce their preferences in director selection (Withers et al. 2012) p ( ) • Foreign holdings : foreign blockholders have an interest in transparency in board appointments; foreign owners may introduce HR practices in line with those in their home country or with global “best practices” (Oehmichen et al 2012; Olcott & Oliver home country or with global “best practices” (Oehmichen et al. 2012; Olcott & Oliver 2014) • CEO influence : CEO equity compensation and CEO duality may influence his/her preferences in director selection (Withers et al. 2012) 8
The case of Japan • Extremely low percentage of women on boards • Pressures for increasing women’s access to leadership positions • Pressures for changing corporate governance 9
Ch Changing corporate governance and i t d women on Japanese boards Are the firms that have engaged in corporate governance reform / have corporate governance mechanisms in line with the reforms the ones in which women have gained access to boards? Do firms with • more non-executive directors / independent directors • a US-style one-tier board structure • smaller board size have more women on their boards than other firms? 10
Data • Listed firms 90% of market capitalization Listed firms, 90% of market capitalization • Total of 381 Japanese listed firms • 2007-2014 • Data on corporate governance from Thomson Reuters ASSET4 • Data on profitability, sector and size from Thomson Reuters Datastream 11
Variables Dependent variable: Dependent variable: • 1 or more women on board (yes/no) • (Percentage of women on boards) Independent variables: • Non-executive board members (%) or independent board members (%) Non-executive board members (%) or independent board members (%) • Board structure (Japanese corporate auditor system or US-style one-tier structure) • Board size (number of members) Control variables • • Firm size (log employees) Firm size (log employees) • Firm profitability (ROA) • Sector 12
R Results lt Women on board (Y/N) W b d (Y/N) Odd Odds Ratio R ti Prob > chi2 P b hi2 0 00 0.00 sigma_u 4.70 Non-executive board members 1.05*** rho 0.87 (0 01) (0.01) Number of 2609 US-style board 21.42*** observations (19.19) Number of Number of 381 381 Board size 1.04 firms (0.05) Sector 1.00 (0.00) Employees (log) 1.49* (0.33) ROA 34.54 (87.86) _ cons 2.90e-06 (6.61e-06) 13
Results • Board independence (%) or non-executive board members (%): as the percentage of non-executive board members increases, so do the odds of having one or more women on the board – albeit a small effect one or more women on the board albeit a small effect • Board structure: firms with a US-style one tier board structure are 21 times more likely to have one or more women on their board than firms with the Japanese y p corporate auditor system • Board size: not significant 14
Outlook: Next steps • Include data on foreign holdings and on ownership concentration • How to measure CEO influence? • How to measure legitimacy of the board? • Interviews with board directors: Search for reasons why we find a clustering of women on boards in those firms that have reformed their corporate governance: Does corporate governance reform facilitate women‘s access to boards? Why and how do governance mechanisms influence women’s access b d ? Wh d h d h i i fl ’ to boards? 15
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