Gender-Diverse Company Boards May Be Better for Environment

Companies with a more balanced mix of men and women on their boards are more likely to make environmentally friendly choices and less likely to be sued for environmental law violations, according to a new study published in the Journal of Corporate Finance.

Researchers at the University of Adelaide in Australia looked at 1,893 environmental lawsuits brought up against the Standard and Poor’s 1,500 firms in the United States between 2000 and 2015 and identified direct links between gender diversity and corporate environmental violations.

The findings show that companies with greater gender diversity on their boards had significantly fewer environmental lawsuits, indicating that female directors contribute to reducing corporate environmental litigation.

For example, for every woman added to a board of directors in the sample, the average lawsuit exposure was reduced by 1.5 percent, which on an average environmental lawsuit (USD $204 million) could equate to a saving of USD $3.1 million.

Study author Dr. Chelsea Liu, a senior lecturer at Adelaide Business School, said the explanation for the findings lies in gender socialization and diversity theories.

“Gender diversity is what’s important — female representation on boards is most important where the CEO is male, and less important if the CEO is female,” Liu said.

“This can be attributed to ‘diversity theory’, which says that a group of people from more diverse backgrounds — gender, race etc. — tend to make better collective decisions, because they canvas a wider range of perspectives.

“Having a range of perspectives can result in improved corporate environmental policy, which in turn can reduce exposure to environmental lawsuits,” she said.

“Gender socialization and ethics theories suggest that girls are brought up to be more caring towards others which can enhance environmental decision-making in the boardroom,” Liu said. “Previous research also found that female executives are less overconfident and more willing to seek expert advice than their male counterparts.”

Liu said with many countries (including Australia) debating whether to mandate boardroom gender quotas, the new findings offer timely evidence to a potential “business-case” justification for increasing corporate gender diversity.

“With corporate environmental responsibility becoming a more important social issue, these findings can have significant implications for policymakers, investors and managers,” said Liu.

“Environmental violations not only have a significant impact on societies, but they can also cause devastating losses of shareholder value.”

Source: University of Adelaide

Photo: Dr. Chelsea Liu. Credit: University of Adelaide.

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