Gender and Corporate Governance - Essay Example

GENDER AND CORPORATE GOVERNANCE Name Professor (Tutor) University Course City and State Date Gender and Corporate Governance Introduction Governance of every company is aimed at ensuring that the company can comply with the standards and implementation of their processes to achieve their goals. All the requirements that are related to the management of the company including all the staff responsibilities are set down and determined by the company’s board, and the company policies set by the company are followed to the latter. Corporate governance can be defined as regulations and practices that are put in place by an organization's board of directors to make sure that there are transparency and accountability in the organization's relationship with all its stakeholders (Adams & Ferreira, 2007). Some of the significant issues of corporate governance are proper contracting between the stakeholders and the organization about matters of responsibilities and reward distribution. Special processes that can be used to solve conflicts between stakeholders according to the assigned roles and privileges. Finally, processes that are used to control and supervise information flow within the organization. In summary, corporate governance is all about what the board of directors of an organization does and how they set the values and mission of the company (Denis & McConnell, 2003). It is different from the daily management by the company top managers. Enterprises that put in place effective corporate governance strategies and processes are often financially successful in their industries. This paper will focus on the effects of gender on corporate governance especially the composition of the board. Article summary and review of literature In their journal article, Jie et al. (2017) investigated the impacts of the composition of the board of directors on dividends pay out. They studied whether female independent directors had the probability of imposing high dividend payouts. Most researchers on the gender composition of the board of directors focus on impacts on risk taking, company performance, and value. However, recent studies have focused on the effects of board gender composition on specific corporate decision-making. Most of these researches major on female directors, and their significance in the decision-making process. One conclusion that has been made is that organizations with female directors put more focus on corporate social responsibility (Shaukat et al., 2016). Besides, these organizations are less likely to undergo the process of downsizing and are more probable to employ female executives. Other aspects of firms with female directors include acquisition through lower premium bids (Levi et al., 2014), more funds on research and development; do not take highly risky investments, higher sensitivity on pay performance and CEO turnover performances. Dividend policy is one important tool of corporate governance in that it is an essential strategy of reducing cash flow issues in an organization. Studies have shown that free cash is reduced within an organization through dividends and this is essential in the reduction of agency costs. Nevertheless, it leads to an increase in the cost of the transaction and this leads to an overreliance on external financing which is expensive (Rozeff, 1982). In relating gender and dividends payouts, it is essential to note the role women directors’ play in dividends as a corporate governance tool. Many studies have proven that organizations whose board of directors is composed of more females than males tend to have high dividend payouts and this can be used as a monitoring tool. In their study Jie et al. (2017), found that the hypothesis was true through identifying 1692 organizations from 1997 to 2011. They found a positive relationship between gender composition of the boards and the payout dividend levels. Furthermore, the quality and needs of an organization in terms of corporate governance is greatly influenced by the relationship between the percentage of female directors and the dividend payout policy. Basing on the conclusions that firms with more female directors are likely to employ high dividend payouts as corporate governance tool, then the impacts of female directors on an organization’s dividend policies are more visible in organizations with weak corporate governance policies or those that require high levels of corporate governance. In non-technology organizations, the impacts of female directors on the dividend payout policies is higher when compared to technology-based firms (Fagan et al., 2011). In summary, an organization’s corporate governance quality is affected by the female percentages in the board of directors through its impacts on the dividend payout policies. However, these effects are more prominent on organizations with weak corporate governance strategies and those that need high levels of governance. All these observations can summarize the importance an organization having more female directors as they tend to use high dividend payouts as a monitoring strategy of corporate governance. The journal article by Jie et al. (2017) provides an insight into gender distribution in organization's board of directors and its influence on important corporate decisions, which is in this case dividend payout policies. Corporate decision-making is a matter of corporate governance, and dividend payout policies is an important tool in corporate governance. Decisions, whether to use high or low dividend payouts in organizations, is left to the board of directors, and the composition of the board regarding gender will often determine which policy to use in the organizations. Media and board gender diversity Issues of board diversity and better corporate governance have been on the rise in today's media sources mainly because of the issue of gender equality (Heidrick & Struggles, 2009). Media promotes gender equality in corporate governance as most authors have suggested that more women in corporate governance often improve the performance of an organization. Board diversity is aimed at creating an extensive spectrum of demographic factors, which is, in this case, focused on gender. Including female representation on organization’s board of directors has been a major focus in the media, as it is believed to be an effective management tool. Benefits of diversifying the board of directors concerning gender are that there is a better utilization of talent, better decision-making processes, and enhancement of the organization corporate face regarding gender equality issues. As analyzed in the study by Jie et al. (2017), board diversity leads to effective decision making in an organization. Having a gender balanced or even more women on an organization's board will ensure decisions are made effectively by ensuring risks are controlled and managed and mitigating the aspect of group thinking (Vinnicombe, 2008). Board diversity ensures that the consumers’ interest is put first since they are the ones that create value to an organization. Company directors are tasked with devising policies and strategies after careful evaluation and solving problems effectively. Groupthink has been one of the major issues that have led to failure in organizations when it comes to a decision making process. Groupthink comes in when decisions are reached without careful analysis and considerations of other alternatives because of being in an environment with cohesive members of the same demographic orientation for example gender. Incorporating different personnel in a group or the board of directors is essential as it eliminates the problem of groupthink, as it will allow for more analysis and consideration of several perspectives before decisions on serious corporate issues are reached. Besides, organizations especially those in the global market industry need to create a gender-balanced face as a strategy to attract more customers and beat competition from their rivals. The stakeholders of such companies need diverse claims for them to be satisfied with the organization. Therefore, it is essential to create a diverse board in relation to gender for the objectives of the organization in relation to stakeholder needs. A diverse gender board of directors will ensure that clear judgments and analysis is done on corporate issues before effective decisions are reached therefore diverse boards are essential in ensuring the decision-making process is effective and efficient. Another aspect of board gender diversity is the better utilization of talent (Vinnicombe, 2008). Since stakeholders of organizations have required directors to perform better, most companies have left the strategy of looking for male directors and have diversified the process into hiring more female directors to utilize their untapped talent. This has done away with the problem of shortage of directors, which had been previously experienced in the corporate world. It is necessary to point out that board gender diversity has allowed organizations to utilize the talent pool that was previously untapped and therefore enhances the performances of organizations in their respective fields. Furthermore, board gender diversity has enhanced the face of organizations when it comes to gender equality issues and rights, and this provides organizations with a competitive advantage over its competitors (Vinnicombe, 2008). Apart from the corporate image, it also positively influences external and internal stakeholders in ensuring that they are satisfied with the organization especially through making sure that there is no gender discrimination. Also, many investors today focus on gender diversity as an aspect of consideration in evaluating investment with organizations. Reasons behind this are the positive effects board gender diversity on organization value and performance. Another reason is its impact on corporate social responsibility, which has been found to be more effective in organizations whose board of directors is comprised of more women. Overall, board gender diversity has been a major issue in the media today because of the impacts it has on organizations and society in general. Board gender diversity in a major factor in the performances of an organization especially when it comes to making decisions on issues affecting an organization. One such issue as analyzed from the article by Jie et al. (2017) is dividend policy management and corporate social responsibilities. Dividend policies and corporate social responsibility are important corporate management tools, and they are greatly influenced by the board composition of an organization. Personal opinion I believe that it is essential for organizations to diversify their board of directors regarding the demographic factors including gender, race, age, and sexual orientation. The article focused on gender alone, but I believe that it is critical that all other demographic factors are considered, as it ultimately improves the performance of organizations not only financially but also concerning other aspects including social and political performances. Companies with more female directors have been found to positively affect the dividend policy and corporate social responsibility. It is, therefore, important for organizations that focus on these two tools as effective corporate governance strategies to hire more female directors. Board gender diversity has been found to ultimately improve organization’s performances and provides a competitive advantage over its rivals. Furthermore, diversifying the board will also ensure that management and employees are diversified through a hiring process that does not support discrimination of any kind. Through building a culture of gender, diversity organizations can solve problems effectively. However, it is critical to ensure that as organizations aim towards board gender diversity the level of skills’ experience, and knowledge should not be neglected in an attempt to meet the gender requirements. All the women considered to the directors' positions in an organization have to undergo the necessary interviews to ensure that they have the relevant qualifications. This, however, should not be an issue as women empowerment has ensured that there are enough talented women in every field of corporate management and governance (Burke & Mattis, 2000). Conclusion In conclusion, board gender diversity is an important aspect of improving corporate governance through decision-making processes for example dividend payout policies and corporate social responsibilities. As proven by the article, gender diverse boards especially those comprising of more females focus on corporate social responsibility are less likely to undergo the process of downsizing, are more probable to employ female executives. Besides, acquisition in such organizations is done through lower premium bids; more funds are put on research and development; do not take highly risky investments, higher sensitivity on pay performance and CEO turnover performances. Therefore, organizations have to ensure that their board of directors is diverse regarding gender and the other demographic factors as a measure of ensuring effective corporate governance. References Adams, R., B. & Ferreira, D., 2007. ‘A theory of friendly boards,’ Journal of Finance, vol. 62, no. 1, pp. 217-250. Burke, R. J., & Mattis, M. C., 2000. Women on Corporate Boards of Directors: International Challenges and Opportunities. Dordrecht, Springer Netherlands. Denis, D., K. & McConnell, J., 2003. ‘International Corporate Governance,’ Journal of Finance and Quantitative Analysis, vol.38, no.1, pp. 1-36. Fagan, C., Gonzalez Menendez, M., & Gomez Anson, S., 2011. Women in management: European employment policy. Basingstoke, Palgrave Macmillan. Heidrick & Struggles, 2009. Corporate Governance Report 2009 - Boards in turbulent times. Heidrick and Struggles International, Inc. Jie C., Woon Sau L. & Goergen, M., 2017. ‘The impact of board gender composition on dividend payouts,’ Journal of Corporate Finance, vol. 43, no. 2017, pp. 86-105. Levi, M., Li, K. & Zhang, F., 2014. ‘Director Gender and Mergers and Acquisitions,’ Journal of Corporate Finance, vol. 28, pp. 185–200. Rozeff, M.S., 1982. ‘Growth, beta and agency costs as determinants of dividend payout ratios,’ Journal of Financial Research, vol. 3, pp. 249–259. Shaukat, A., Qiu, Y. & Trojanowski, G., 2016. ‘Board attributes, corporate social responsibility strategy, and corporate environmental and social performance,’ Journal of Business Ethics, vol. 135, pp. 569–585. Vinnicombe, S., 2008. Women on corporate boards of directors: international research and practice. Cheltenham, U.K., Edward Elgar. Appendix A Jie C., Woon Sau L. & Goergen, M., 2017. ‘The impact of board gender composition on dividend payouts,’ Journal of Corporate Finance, vol. 43, no. 2017, pp. 86-105. Read More