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Global Reforms of Gender Diversity on Boards Drive Corporate Innovation | Study by ZHU Zhenghang
2024-12-11

In recent years, the underrepresentation of women on corporate boards has become a critical issue for practitioners, policymakers, and academics alike. This persistent imbalance is not only due to unequal opportunities, but also to deep-rooted gender stereotypes that systematically hinder women’s career advancement and perpetuate the lack of diversity in corporate boardrooms.

Many countries have recognized this challenge and have implemented strategic reforms to promote gender diversity on corporate boards. These reforms take various forms, including legal mandates and revised governance codes that provide guidelines for increasing the representation of women in leadership positions. The main objectives of these initiatives are to correct the historical under-representation of women and improve the overall quality of corporate governance.

While such measures have demonstrably improved the proportion and visibility of women in leadership positions, their broader impact — particularly in terms of corporate innovation — remained unclear until recent research. ZHU Zhenghang, a distinguished researcher from the Hundred Talents Program at the School of Management, Zhejiang University, led a joint study with national and international partners to investigate this crucial relationship. This empirical research provides compelling evidence that targeted initiatives to promote gender diversity on corporate boards can significantly stimulate innovation, ultimately contributing to more sophisticated and effective management practices.

Click  here  to access the journal article

The results were published in the leading international journal Organization Science (a UTD24 Journal) under the title “Board Gender Diversity Reforms Around the World: The Impact on Corporate Innovation.”

ZHU Zhenghang  |  朱正航

School of Management, Zhejiang University




 

Academic Background:  ZHU Zhenghang is a researcher in the Hundred Talents Program and a doctoral supervisor at the School of Management of Zhejiang University. He is mainly engaged in finance and accounting research based on the background of the international capital market. His research areas include capital market supervision, corporate governance, and information disclosure.

He focuses on the differences in accounting and governance standards and systems in different countries, their impact on corporate decision-making, and the role and dissemination of accounting information in the global capital market.


You can learn more about Prof. ZHU Zhenghang’s academic background  here 

What is the Impact of Gender Diversity Reform Policies?

A 2020 study revealed a significant correlation between gender diversity and corporate performance. Companies in the top quartile of gender diversity on supervisory boards are 25% more likely to outperform their industry average compared to those in the bottom quartile. As more countries implement gender diversity initiatives, the presence and influence of women in leadership positions have become a critical focus of global business research. Despite growing attention, the effectiveness of these measures remains a topic of ongoing investigation.

Critical questions emerge at the intersection of board composition and corporate innovation: What is the precise relationship between gender diversity reforms and companies’ innovation performance? How does an increased presence of women on boards influence strategic decision-making and innovation development? A fundamental challenge for governments and institutional stakeholders is identifying the most effective policy implementation approaches.

Recognizing the lack of definitive conclusions, ZHU’s research team undertook a comprehensive empirical study to systematically investigate the impact of board gender diversity policies on corporate innovation. Their research aims to clarify these complex questions and offer insights for policymakers and corporate leaders.

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Researchers Have Developed New Models to Investigate Best Practice Implementation Approaches for Gender Diversity on Boards

Many successful women in the workplace have observed that symbolic board representation without substantive decision-making power can be limiting. Some professionals choose to start their own businesses to create value through leadership approaches that fully utilize their skills and expertise.

Some companies have increased the number of female board members to meet mandated measures without giving them meaningful decision-making power. This superficial approach undermines the intended reforms and reduces board diversity to a tick-box exercise rather than a genuine commitment to inclusive leadership.

Previous studies have often focused only on the representational aspect of women’s presence on boards, overlooking the critical differences in roles, levels of authority, and potential strategic contributions that women can make within corporate governance structures.

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ZHU’s team has filled this research gap by developing and testing a comprehensive two-mechanism institutional model that considers different national contexts. By distinguishing between representation and empowerment mechanisms, their model shows how policy interventions can promote corporate innovation outcomes by structurally changing corporate governance.

The study found that companies primarily use representation and empowerment to strengthen the board’s supervisory and advisory role in innovation-related strategic decisions and promote corporate innovation.

After Examining Data from Over 30,000 Companies Worldwide, the Researchers Conclude That Reforming Gender Diversity at Board Level Promotes Corporate Innovation

The researchers collected 325,388 annual reports from 35,366 companies in 55 countries between 2000 and 2016 to establish a causal relationship. They used a difference-in-differences approach to compare innovation changes in companies from countries implementing reforms against a control group before and after the reforms. Their empirical results suggest that countries that introduced gender diversity policies on boards experienced improvements in the quantity, quality, and efficiency of corporate innovation. Moreover, the reforms were more effective in countries with more significant gender gaps and a more excellent supply of qualified female board members before the reforms.

In other words, board gender diversity reform positively impacts corporate innovation outcomes by increasing female representation and empowering female board members, with empowerment playing a vital role.

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While strict regulatory reforms are more effective in increasing the number of women on boards, reforms that promote normative change — such as a ‘comply or explain’ approach — are more likely to empower women and achieve substantive gender diversity, which has a more positive impact.

The first approach forces companies to ensure a certain proportion of women on their boards through legislation. For example, the Norwegian gender quota stipulates that listed companies must have at least 40% female board members. In this way, the gender composition of the board is changed quickly and directly.

The latter approach allows companies to decide how to implement gender diversity reforms on their boards according to their circumstances and strategies. Through incentives, advocacy, and education — rather than mandates — companies may be more inclined to include female board members who can contribute significantly. This approach allows companies to empower female board members in a truly inclusive and equitable way.

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In summary, the work of ZHU’s team, based on global policy research, represents an important step in understanding the impact of board gender diversity reforms on innovation outcomes. Their findings provide empirical support for implementing and promoting such reforms.

Their research compares the effectiveness of different policy implementation methods and provides theoretical evidence for policy formulation. This not only contributes to gender equality but also helps companies achieve better development outcomes.

The Contribution of the Study on Research on Gender, Organizations, and Innovation to Promote Better Innovation Outcomes of Companies

1. Important contributions to empirical research on gender, organizations, and innovation

First, the findings of ZHU Zhenghang’s team advance research on gender inequality and tokenism. Previous studies using gender role theory to explain the underrepresentation of women in leadership positions often confused the mere presence of women with authentic empowerment, overlooking the different roles and levels of influence women have in leadership positions.

This research bridges the gap by shifting attention from organizational-level initiatives to national-level regulatory reforms and distinguishing between superficial female representation and genuine female empowerment. The results show that regulatory interventions that involve structural changes that bring women into positions of influence—without imposing strict gender quotas—are most effective in promoting positive business outcomes such as innovation. The study is also a response to recent calls for evidence on removing institutional and organizational barriers to women having a significant impact on leadership and decision-making.

Second, the study extends the literature on board gender diversity reforms by demonstrating how country-specific contextual factors influence reform outcomes. Previous studies have often focused on individual countries, making it difficult to generalize the results. Dr. ZHU’s team’s work takes into account both the design of the reforms and the social and cultural environment in which they are implemented, thus enriching the literature and empirical research in this area.

2. Providing new perspectives for policymakers on formulating gender diversity policies

This study provides policymakers with a new perspective for developing gender diversity policies to address inequality at the board and corporate levels. By building a more comprehensive theoretical framework, the study enables a more accurate assessment of the impact of board gender diversity on corporate performance. It demonstrates the effectiveness of government regulation in promoting gender equality on corporate boards, thereby improving strategic decision-making in companies.

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In addition, the study highlights the key factors that governments need to consider when drafting laws and regulations — particularly how to design policies that simultaneously promote social justice and stimulate innovation. More importantly, the study emphasizes the importance of adapting policy implementation plans flexibly to circumstances.

The study thus serves as a reference point for governments and other relevant institutions and shows how regulatory strategies can create a more open, inclusive, and creative work environment. This contributes to the positive and healthy development of the global business ecosystem.

ABSTRACT:

In response to persistent gender inequality in corporate leadership, many countries have implemented board gender diversity reforms through legislation or by revising governance codes for board appointments. Whereas these reforms aim to enhance women’s representation and influence in leadership roles, their effects on corporate outcomes, such as innovation, remain unclear.

This study develops a two-mechanism institutional contingency model to investigate how board gender diversity reforms affect firm innovation through representation and empowerment mechanisms. Using a unique hand-collected data set on worldwide board gender diversity reforms and a quasi-experimental difference-indifferences design, we find that these reforms significantly improve innovation outcomes, with the empowerment mechanism having a more substantial positive effect than the representation mechanism. Additionally, we show that rule-based reforms, although effective at increasing female board representation, often lead to symbolic compliance and tokenism, which limits their ability to enhance innovation.

In contrast, comply-or-explain reforms, emphasizing empowerment and genuine engagement, yield more meaningful progress in firm innovation. Our findings also reveal that countries with higher pre-reform gender disparities and a larger pool of qualified female directors experience more significant innovation gains following the implementation of these reforms. By distinguishing between the effects of representation and empowerment, this study provides a nuanced understanding of how gender diversity regulations can catalyze innovation and offers valuable insights for policymakers designing reforms to promote gender equality and economic outcomes.




- We thank ZHU Zhenghang and his research collaborators for their invaluable contributions to advancing our understanding of board gender diversity reforms and their influence on corporate innovation.

- You can read the original article in Chinese  here 

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