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Literature Review

Thefeatures of gender diverseness in the council chamber and their impact on house public presentation station Lord Davies Report

( 2011-2014 )

1.INTRODUCTION

2.THE LITERARURE REVIEW

2.1Agency theory positions on Gender diverseness

2.2Resource Dependence theory positions on Gender diverseness

2.3Behaviouraltheory positions on Gender diverseness

2.4Evidence of empiricist philosophy on Gender diverseness research

1. Introduction

This proposed research will look into the relationship between the corporate public presentation and gender diverseness in a sample of 30 FTSE 100 companies for the period station Lord Davies Report ( 2011-2014 ) . It will besides research the positions, which adult females bring to the board and it will concentrate on the undermentioned research inquiry:

RQ:An scrutiny of the features of gender diverseness in the council chamber and their impact on house public presentation?

Sub-questions:

  1. To find the gender diverseness on the board of 30 FTSE 100.
  1. Impact of gender diverseness on internal steps of house public presentation.
  1. Impact of gender diverseness on external steps of house public presentation.
  1. Does UK necessitate compulsory quotas on the female board representation?

2. THE LITERARURE REVIEW

The overall construction of the literature reappraisal, takes the signifier of 2 Sections, including Introduction and Conclusion. A considerable sum of literature has been published on theoretical foundation of the proposed research. These theories have been dominated by Agency theory, Resource Dependency theory and Behavioural theory.

2.1 Agency theory positions on Gender diverseness

Carter at EL ( 2003 ) have reported that there is relationship between board diverseness and house value in the context of bureau theory, as outlined by ( Fama, Jensen, Michael University of Chicago, Center for Research in Security Prices, 1982 ) . Agency theory is based on the hostility between the Agent ( the board ) and the Principal ( stockholders ) when their involvements do to non co-occur ( Berne & A ; Means, 1932 ; and Jensen & A ; Meckling, 1976 ) . Conflict between the Agent and the Principal more likely to go on when the company does non execute every bit good as it could.

Carter at EL ( 2003 ) suggest the gender diverseness enhances the board’s ability to supervise top direction and actuate them to increase company’s value. In add-on to this, Carter at EL ( 2003 ) indicate that adult females more likely to inquire the hard inquiries in the council chamber than work forces, which could better the board’s independency ( Campbell and Miguez-Vera, 2008 ) . The bureau theory positions board of managers as an internal control mechanism for safeguarding stockholder involvements from managerial self-interest ( Hillman & A ; Dalziel, 2003 ) .

2.2 Resource Dependence theory positions on Gender diverseness

The Resource Dependence theory ( RDT ) emphasizes the differences in board composing that may impact upon companies’ public presentation. The RDT maintains that the board is an indispensable nexus between the house and the external resources that a house needs to maximize its public presentation ( Pfeffer & A ; Salancik, 1978 ) . Boardss of managers are a primary linkage mechanism for linking a house with beginnings of external dependence. By choosing a manager with valuable accomplishments, influence, or connexions to external beginnings of dependence, the company can cut down dependence and addition valuable resources ( Hillman & A ; Dalziel, 2003 ) .

RDT does non chiefly concentrate on the gender diverseness nevertheless it indicates that the board should be diverse and directors’ occupational and functional experiences match the demands of companies ( Corporate linkages and organisational environment: a trial of the resource dependance theoretical account. 1990 ) .There is an effort to incorporate bureau and RTD theory and show that presence of adult females on board improves companies’ public presentation ( Hillman at EL, 2007 ) .

2.3 Behaviouraltheory positions on Gender diverseness

BasedonBehaviouraltheory, adiversifiedboardhasmore comprehensive formation available to it and is quicker at determination devising ( Cyert at EL, 1963 ) . Amason ( 1996 ) finds that heterogenous groups have better quality determination doing than homogeneous groups because of the comprehensiveness of information handiness is higher with a heterogenous group than a homogeneous group. Miller et Al. ( 2009 ) suggest that this relationship operates through two go-betweens: house repute and invention.

In the above context, Behavioural theory has been farther extended by developing a Behavioral theory account of boards and corporate administration ( Van Ees at EL, 2009 ) .

2.4 Evidence of empiricist philosophy on Gender diverseness research

Although the literature reappraisal will cover diverseness direction, it will concentrate on the nexus between diverseness and public presentation of listed companies in UK. The literature reappraisal groups under two subjects foremost one will analyze impact of the gender diverseness on the external steps of corporate public presentation and 2nd one will look into internal steps.

Cox & A ; Blake ( 1991 ) survey suggested that pull offing diverseness can make a competitory advantage. Their thoughts were farther explored by Robinson & A ; Dechant ( 1997 ) , who listed assorted grounds including concern growing and effectual problem-solving.

Based on Milliken and Martins’s ( 1996 ) theoretical account on the ‘Effects of Diversity in

Organizational Groups’ , it can be argued that gender diverseness impacts organisational procedures and, in peculiar, results such as turnover and public presentation. Compared to the diverseness of other demographic properties, gender diverseness appears to be the most widely addressed in the literature. Erhardt et Al ( 2003 ) indicates that gender diverseness in the board diverseness is positively associated with these fiscal indexs of steadfast public presentation such as return on equity and return on assets. Carter at EL ( 2003 ) , who examined the board diverseness overall, has found a positive nexus between the presence of adult females or minorities and the firm’s value. Consequently to Carter at EL ( 2003 ) , gender diverseness has a positive impact on fiscal public presentation through the audit map.

Womans in the council chamber have been a hot subject in the UK media treatments in the past decennary every bit good as governmental enterprises on the corporate administration reforms. Higgs study commissioned by DTI ( Higgs Report, 2003 ) identified that diverseness could increase the board effectivity. This study shows a strong nexus between good corporate administration and gender diverseness in the council chamber. The Higgs study followed by the Tyson study ( Tyson study, 2003 ) , which suggested looking into the wider pool of suited campaigners to the council chamber to advance diverseness equal chances for diverse campaigners.

Catalyst survey ( 2004-2008 ) presented the concern instance for pulling more adult females to the council chamber. Catalyst used the information of female board representation from 353 of Fortune 500 companies and three steps of fiscal return on gross revenues ( ROS ) , return on invested capital ( ROIC ) , and return on equity ( ROE ) and established a positive nexus between gender diverseness and fiscal public presentation. Claude Francoeur’s research ( 2007 ) further examines how the presence of adult females in the council chamber enhances firm’s public presentation by taking Catalyst findings and information and adding into consideration the complexness of the house and hazard confronting the company. He supports the positive effects of female board members and ‘’indicates that houses runing in complex environments that have a high proportion of adult females officers do experiment positive and important monthly unnatural returns of 0.17 % , which can intuitively be extrapolated to a 6 % return over 3 years.’’

Campbell and Minguez-Vera ( 2008 ) has looked into the impact of gender diverseness on both: external and internal steps. They continue to research old researchers’ involvement of the impact on the firm’s value and used Tobin Q to mensurate Firm’s value(Tobin ‘s Q = Total Market Value of Firm / Total Asset Value of Firm ) , However a negative relationship between board gender diverseness and ROA has been shown. They besides have identified the undermentioned internal steps affected: the monitoring function of the board of managers, board increased creativeness and invention

Krishnan & A ; Parsons ( 2008 ) survey addresses the impact of the gender diverseness on the external steps of house public presentation such accounting gaining quality. They have found a positive relation between gender diverseness and an accounting gaining quality. Adams & A ; Ferreira ( 2009 ) indicate that a gender diverse board able to supervise the house public presentation better because female board members attend the board meeting more on a regular basis. However they besides point out that there is a negative consequence of the gender diverseness such as fewer coup d’etat defense mechanisms and variableness of the stock return.

Consequently to Nielsen and Huse ( 2010 ) , female board members have different professional experience and values. That is why adult females can convey a positive influence to decision-making and effectivity of the board processes. If the board is a well-diversified one so it will heighten the house public presentation by holding more effectual decision-making procedure and making a positive corporate image of equality and inclusion ( Rhode & A ; Packel 2010 ) . Further survey in this field indicated that increased degrees of diverseness could be harmful to company public presentation ( Carter et al. , 2010 ) .

UK authorities is looking into bettering the gender balance in the council chamber by promoting major companies to name adult females into the top occupations. Corporate Governance Code ( 2010 ) states that “the hunt for board campaigners should be conducted, and assignments made, on virtue, against nonsubjective standards and with due respect for the benefits of diverseness on the board, including gender” . Further UK governmental support to the ’business case’ for Gender Diversity was established by Lord Davies of Abersoch’s reappraisal in February 2011, which called for a mark of 25 per cent of each FTSE 100 Board to be female by 2015 ( Davies,2011 ) .

On 26 March 2014, two of import studies were published on gender diverseness – the Davies Review Third Annual Report and Cranfield’s Female FTSE Board Report 2014. Both contain informations on the figure of adult females on big company boards. The statistics given are as at 3 March 2014 and demo that adult females accounted for 20.7 % of all FTSE 100 directorships ( Davies et al, 2014 and Vinnicombe et Al, 2014 ) .

3.0 Decision

It is apparent that in the examined above empirical plants, writers agree that Gender Diversity on Boardss are of import. At the same clip, it is clear besides that there is non conclusive grounds, which will demo the Impact of Gender Diversity on Firm’s Performance every bit good as its impact on external and steps because research workers use different attacks and different samples. One unfavorable judgment of much of the literature on Gender Diversity is that researchers’ positions differ on the topic of how the board can go a gender diverse one for illustration by pulling one adult female or more or whether the board should hold an equal representation of both genders. FTSE 100 companies will shortly make the 25 % mark for female representation but the issue of UK Board Diversity should non be concerned with gender merely it should turn to other facets of Diversity. Further research will be needed to measure the impact of the Board Diversity one time the board will include representatives from UK diverse population.

Mentions

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Womans on boards: February 2011.( 2011 ) Lord Davies.

Womans on boards: 3rd one-year reappraisal ( 2014 ) , Lord Davies and maneuvering group

Adams, R. B. and Ferreira, D. ( 2009 ) Women in the council chamber and their impact on administration and public presentation,Journal of Financial Economics,94 ( 2 ) , pp. 291-309.

Amason, A. C. ( 1996 ) Distinguishing the effects of functional and dysfunctional struggle on strategic determination devising: Deciding a paradox for top direction squads,Academy of Management Journal,39 ( 1 ) , pp. 123-148.

Berle, A. A, Means A, Gardiner C. , ( 1932 )The modern corporation and private belongings,New York: Macmillan.

Campbell, K. and Minguez-Vera, A. ( 2008 ) Gender diverseness in the council chamber and steadfast fiscal public presentation,Journal of Business Ethical motives,83 ( 3 ) , pp. 435-451.

Carter, D. A. , D’Souza, F. , Simkins, B. J. and Simpson, W. G. ( 2010 ) The gender and cultural diverseness of US boards and board commissions and steadfast fiscal public presentation,Corporate Administration: An International Review,18 ( 5 ) , pp. 396-414.

Carter, D. A. , Simkins, B. J. and Simpson, W. G. ( 2003 ) Corporate administration, board diverseness, and house value,Financial Review,38 ( 1 ) , pp. 33-53.

Carter, N. M. and Wagner, H. M. ( 2011 ) The bottom line: Corporate public presentation and Women’s representation on boards ( 2004–2008 ) ,Catalyst,.

Council, F. R. ( 2010 ) The UK corporate administration codification,London: Financial Reporting Council,.

Cox, T. H. and Blake, S. ( 1991 ) Pull offing cultural diverseness: Deductions for organisational fight,The Executive,pp. 45-56.

Cyert R. , March M. , James G. , ( 1963 )A behavioural theory of the house.Englewood Cliffs, N.J. : Prentice-Hall.

Erhardt, N. L. , Werbel, J. D. and Shrader, C. B. ( 2003 ) Board of manager diverseness and steadfast fiscal public presentation,Corporate Administration: An International Review,11 ( 2 ) , pp. 102-111.

Fama, E. F. , Jensen, M. C. , University of Chicago. , Center for Research in Security Prices. , ( 1982 )Agency jobs and residuary claims.Chicago: Center for Research in Security Prices, Graduate School of Business.

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Pfeffer, Jeffrey. , Salancik, Gerald R. , ( 1978 )The external control of organisations: a resource dependance position.New York: Harper & A ; Row.

Rhode, D. and Packel, A. K. ( 2010 ) Diverseness on corporate boards: How much difference does difference do?Rock Center for Corporate Governance at Stanford University Working Paper,( 89 ) .

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