The Contrasting Colours of Women Directors in Family Firms

20/01/2021 Uncategorized

Profs. Rachida Justo and Cristina Cruz of IE Business School, and fellow researchers Martin Larraza-Kintan and Lucia Garces-Galdeano of the University of Navarra, make an in-depth assessment of how different kinds of women directors exert an influence in the decision-making process when it comes to Corporate Social Performance in family firms.

 

Related research: When Do Women Make a Better Table? Examining the Influence of Women Directors on Family Firm’s Corporate Social Performance, SAGE.

 

Is just the presence of women in decision-making roles sufficient to effectively measure the influence of women on the Corporate Social Performance (CSP) of a company? Does the number of women in authority also matter? And are different kinds of women directors perceived in a different way and hence have varying degrees of influence overall?

This is what profs. Rachida Justo, Cristina Cruz, Martin Larraza-Kintana, and Lucia Garces-Galdeano tackle – addressing the gap in existing research where only the presence and number of women were taken into consideration to measure CSP. Here, they dig deep into the varying power dynamics of different types of women directors in a family firm. They do so to find out if there is a certain combination of characteristics that make women directors more influential.

It is indeed true that the role of gender diversity in boardrooms is frequently examined. This is mostly done to analyze the performance of a company with respect to advocating different social and environmental problems. It is convincingly proven that women bring in different perspectives and help a company to better achieve its goals. Additionally, the gender roles from years ago dictate women to be more compassionate and supportive. In this context, how are different women perceived by the other employees?

 

Power dynamics of family firms

In an environment where a family owns a business, it is not uncommon to see an overlap between ownership and management roles. Firms appoint certain family members to powerful roles simply to strike a balance between the interests of the family and other key stakeholders.

Within this framework, the authors make a clear distinction between the different kinds of women in power in family firms, referring to female directors who are part of the executive board as insiders. They term those women directors who form the non-executive board as outsiders, as they bring in an objective perspective. And women who belong to an owning family are referred to as family directors and those who do not as non-family directors.

As such, the researchers measure family-firm CSR performance against the power and influence the different kinds of female directors to wield in the company.

 

The varying power of family female directors

Firms can either appoint family female directors as part of the executive board or the non-executive board.

Women family members appointed as non-executive directors may be considered as “token women” when their professional qualifications do not match the job they are hired for. Indeed, firms can choose them for the role without taking into account their professional qualifications. This carries with it a risk that other senior employees see such women as a representation of the family firm and their opinions may not be as valued. Consequently, the authors hypothesize that women directors who are part of the non-executive board are not influential enough to affect the performance of CSR of the family firm.

On the other hand, female family directors who are part of the executive board are valued. This might be the case as executive directors do not work independently. When making decisions, the entire board of members play an equal role. This is not the case with respect to non-executive directors as they are hired solely to bring an independent external view. As a direct result of this pivotal difference, female directors who are part of the executive board of the company are valued more and hence have a greater influence in driving up the CSP of the firm.

 

Role of independence for non-family female directors

Non-family female directors who are part of the non-executive board are not considered as “token women”. This is for the simple reason that they are hired because of their expert knowledge. They come with a certain sense of mastery that is considered legitimate by other employees. Further, they don’t just represent a common stereotype that women carry – that is, to be more active in CSR activities – but also speak from domain knowledge. Even when their suggestions contradict those of the family’s views, their opinions still weigh in. Owing to this fact, the authors prove that these women are seen as more influential.

In contrast, non-family female directors who are part of the executive board may not be as influential as they face greater risks and accountability for the performance of the family firm. They may often be in a tug of war between their gender roles to be in favor of CSR activities and as directors of an executive board.

 

Perception of power makes all the difference

The true power of a person is often defined by how people perceive them. This perception is either based on expertise the person brings in, or on the prestige they hold. It is indeed interesting to observe that the presence of a controlling family environment does not take away the credibility that some female directors bring with them. In essence, non-family females who are part of the non-executive board and female family members who are part of the executive board both succeed in being influential entities in the firm.