Businesses urged to hire more female board directors to increase profit and improve the environment

Having more females on a company’s board of directors can improve both financial performance and renewable energy consumption, according to a new study published by De Montfort University Leicester (DMU). 

Researchers analysed data for 1,491 USA-based businesses to identify patterns between the number of women directors on a company board and the firm’s level of renewable energy consumption. 

Christina Wocintechchat on Unsplash
Photo by Christina Wocintechchat on Unsplash

They found that increasing the percentage of female directors increases the amount of renewable energy used, which also raises the firm’s value. 

Dr Samsul Alam, Associate Professor of Research at DMU’s Leicester Castle Business School, worked on the project alongside Muhammad Atif from Macquarie University in Australia, Mohammed Hossain from Gulf University for Science and Technology in Kuwait, and Marc Goergen from IE Business School in Spain. 

“Gender diversity on a business’s board of directors has a significant positive impact – not just environmentally but financially too,” explained Dr Alam.  

“The decision to consume renewable energy typically relies on a business’s board of directors and female directors have been shown to be more concerned about societal issues, which means they are more likely to advocate the use of renewable energy.” 

However, the research indicates that in order to have a meaningful positive impact, there needs to be at least two female directors on the board. 

“Our findings support critical mass theory,” continued Dr Alam. “In other words, if there is only one woman on the board there is less likely to be a significant increase in energy consumption. 

“But once there are two or more female directors on the board, their collective voice becomes stronger and more influential.” 

The study also shows that the impact that women directors have on renewable energy consumption is largely attributable to those who are independent, rather than executive company directors. 

Drew Beamer on Unsplash
Photo by Drew Beamer on Unsplash

“If you are an independent director you do not have the fear of losing your job, whereas those who are employees are more cautious,” said Dr Alam.  

Conducted over a nine-year period between 2008 and 2016, the study focused on US businesses of all sizes, using data sourced from Bloomberg, BoardEx, and Factset. 

They chose the USA because it is still not mandatory there to have a minimum percentage of women on the board. By comparison, in Europe most countries have set up required thresholds that say there must be a set percentage of female board directors and the positions cannot be filled with males. 

“The main finding of our study is that gender-diverse boards are beneficial in terms of greater renewable energy consumption and that the interaction between board gender diversity and renewable energy consumption improves firm financial performance,” added Dr Alam.  

“Therefore, firms with fewer than two women on their board should consider adding more female directors.”

Posted on Thursday 30 July 2020

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