Voluntary disclosure of ethical corporate governance practices has gained significant prominence in the corporate governance codes across many countries as such disclosures help to reduce the information gap between shareholders and managers as well as foster shareholder value and stakeholders’ interests. Ethical corporate governance disclosures include issues of accountability, transparency, risk management and corporate social responsibility.
Prior research identifies that women notice and bring ethical disclosure concerns to the attention of the board more regularly than men. In a recent Journal of Business Research study with colleagues Geofry Areneke, Abongeh Tunyi, and Tanveer Hussain, we explored if boardrooms with female directors engage in higher disclosure of corporate governance practices than those without female representation.
Biology, biochemistry, and physiology teach us that there are natural differences in testosterone levels between women and men. This may explain differences in appetite for risk-taking and the propensity to be over-confident. In this regard, women tend to be more liberal, less aggressive, more nurturing and less likely to harm others than men. Also, from what we know from studies on ethics, sociology and psychology, women are more ethically sensitive than men, partly due to socialization. This is argued to be so because women and men learn different values, gender roles, and concerns which form their feminine and masculine personality traits from childhood.
Due to the higher embodiment of societal values than men, women tend to react more ethically when faced with dilemmas
Besides, women are more driven to achieve communal goals and they regard the need to develop interpersonal relationships, whereas men are guided by more selfish goals with their focus more on the pursuit of personal achievements. In essence, due to the higher embodiment of societal values than men, women tend to react more ethically when faced with dilemmas. From a socio-cultural perspective, men and women tend to be culturally assigned gender roles, such that power and status conventionally favours men, which may further account for increased risk tolerance for men compared to women.
Empirically examining 108 listed Nigerian firms over seven years, our study shows that female directorship is positively and significantly associated with ethical corporate governance disclosures. While women face negative preconceptions and stereotypes about their leadership capabilities, firms with female directors disclose higher ethical corporate governance practices than firms without such representation.
This is a very useful finding and in line with government’s efforts in the regard. No doubt, the Nigerian government – through the 2006 Central Bank of Nigeria (CBN) corporate governance Code; the 2009 National Gender Policy; the 2011 Securities and Exchange Commission corporate governance Codes; and the 2018 Financial Reporting Council corporate governance code – has developed several initiatives to address gender discrimination in the boardroom. Despite these initiatives, there is still a perception that the limited appointment of female directors to boardrooms and executive positions is driven by affirmative action and not based on their leadership capabilities/contribution to the firm’s value creation nor the firm’s own ethical behaviour.
Our study shows how women can promote voluntary ethical corporate governance disclosure. We show that, due to their motivation to promote ethical standards, female directors bring their experience, leadership skills, communal orientation, and interests into the boardroom which increases ethical corporate governance disclosures. As such, we observed a marked difference between firms with female directorship and those without such or low representation. We therefore argued in our study that firms do not only meet the legitimacy, representativeness and equality concerns of different stakeholders by increasing gender diversity on boards, but in addition, firms with female directorship improve on firm-level ethical disclosure practices.
However, there is a caution. Our study finds that the value relevance of female directors is dependent on the presence of other supporting or limiting mechanisms. For example, we find that female directors are more effective in influencing good corporate governance practices in firms with institutional investors and in boardrooms with foreign directors. Also, we find that large boardrooms limit the ability of women directors to enhance corporate governance practices as it increases free-riding behaviour, inefficiency and lack of cohesiveness.
Specifically, female directors are more likely to use their ideas, perspectives, and creativity to enhance corporate governance when boardrooms are small. Besides, female directors are more likely to be replaced in larger than in smaller boardrooms. Similarly, women are less likely to participate actively in boardrooms where the chairman and CEO positions are separated, which runs contrary to what the Nigerian corporate governance codes envisaged. In the same light, female directors are more likely to be substituted by foreign and non-executive directors.
As such, we suggest that in order to harness the full potential of women in boardrooms, gender quotas should be enforced and or made mandatory within future industry-specific and or country level governance codes. Rather than a laissez-faire approach and leaving board gender diversity to the forces of demand and supply, the benefits of a quota system are numerous. We have seen that firms with female directors are likely to engage in ethical corporate governance practices to avoid economic, political, and social costs.
Women bring diverse perspectives into boardroom decision-making, enhance effective monitoring, control, and protection of shareholders’ interest. Indeed, political governance in Nigeria might be better off with more women in senior and high-level decision-making positions. Beyond rhetoric, this may be a strategy to reduce corruption, make governance more ethical and strengthen the weak institutional environment for governance in Nigeria.
Adegbite is Professor of Accounting and Corporate Governance at the University of Nottingham, UK, and at James Cook University, Singapore. Email: [email protected]