Everybody is trying to go green. Companies are making a big point of how environmentally aware they are. This being the case there was an interesting study published this week showing that companies with a more balanced mix of men and women on their boards are better at protecting the environment and less likely to be sued for environmental law violations.
What the researchers say: The study, published in the Journal of Corporate Finance, examined 1893 environmental lawsuits raised against the ‘Standard and Poor’s’ 1500 firms in the United States between 2000 and 2015 and identified direct links between gender diversity and corporate environmental violations.
The study found companies with greater gender diversity on their boards experienced significantly fewer environmental lawsuits, indicating that female directors contribute to reducing corporate environmental litigation. For example, for every female added to a board of directors in the sample, the average lawsuit exposure is reduced by 1.5%, which on an average environmental lawsuit (USD $204 million) could equate to a saving of USD $3.1 million.
The study’s lead author says the explanation for the findings lies in gender socialization and diversity theories. “Gender diversity is what’s important—female representation on boards is most important where the CEO is male, and less important if the CEO is female,” she says.
“This can be attributed to ‘diversity theory’, which says that a group of people from more diverse backgrounds—gender, race etc.—tend to make better collective decisions, because they canvas a wider range of perspectives.
“Having a range of perspectives can result in improved corporate environmental policy, which in turn can reduce exposure to environmental lawsuits,” she adds.
“Gender socialization and ethics theories suggest that girls are brought up to be more caring towards others which can enhance environmental decision-making in the boardroom,” the researchers say. “Previous research also found that female executives are less overconfident and more willing to seek expert advice than their male counterparts.”
The lead author says with many countries (including Australia) debating whether to mandate boardroom gender quotas, the research provides timely evidence to a potential ‘business-case’ justification for increasing corporate gender diversity.
“With corporate environmental responsibility becoming a more important social issue, these findings can have significant implications for policymakers, investors and managers,” she says.
“Environmental violations not only have a significant impact on societies, but they can also cause devastating losses of shareholder value.”
So, what? Quite apart from the environmental issue—which is important—the study reinforces several aspects of the diversity issue.
- Decisions made by diverse teams (or Boards) are generally much better because of the variety of perspective that the members bring to any issue
- Diversity is not just about gender. In many ways the equation of diversity and gender is unfortunate. A white high-income woman will probably not have a very different perspective than a white high-income man. Their backgrounds, schooling and assumptions will probably be the same.
In previous issues of TR I have dealt with these issues at greater length.
What now? Diversity should include class, gender, ethnic background and sexual orientation as well as other differentiators. However, quotas for specific groups have not been shown to work that well and are often exclusive of a variety of viewpoints which would make decision-making more effective—whether about the environment or anything else.