Can adding women on boards of directors of major corporations reduce the incidence of serious corporate crime?

One recent study indicates the answer is yes.

The study titled – The Influence of Female Directors on Product Recall Decisions – finds that as boards add female directors, recall decisions change.

“Firms initiate more medical product recalls that are low in severity and hence easier for firms to avoid initiating, highlighting the increased rule-following brought to bear by adding female directors,” the authors found. “Firms also make faster recall decisions for the most serious defects that are high in severity and dangerous for customers, highlighting the increased stakeholder responsiveness resulting from adding female directors. Firms may more closely align recall decisions with regulatory rules and become more sensitized to customer health and safety by adding female directors.”

The study also found that adding one female board member is not enough. Two female directors may be required to speed up recall decisions for the most serious, life-threatening defects, the study found.

Villanova University School of Business Professor Corinne Post is one of the co-authors of the study.

More women on boards means less corporate crime?

“Based on the data, there seems to be a pretty consistent pattern supporting that,” Post told Corporate Crime Reporter in an interview earlier this month. “There are a number of studies looking at accounting and financial crimes. I have been doing studies that seem to suggest a consistent pattern regarding ethics and rule following. Most recently I have published a paper with my co-authors titled The Influence of Female Directors on Product Recall Decisions.”

“We looked at firms’ decisions to recall products that they find out are defective. We looked at whether they recall or the speed of the recall is affected by women on the board of directors of those corporations.” 

And what did you find there?

“We focused specifically on medical products because those products are regulated by the Food and Drug Administration (FDA). The FDA has rules about when a product needs to be recalled. My colleagues were able to obtain data under the Freedom of Information Act. And data is from about 90 United States firms regulated by the FDA. It spans about eleven or twelve years. It includes data about when the firm became aware that their medical device or product had negative consequences on end users. The timing of that event and the timing of when they decided to issue a recall.” 

“Defects are classified into three categories. One is the very high severity – where defects were causing deaths or serious injury. Medium is where there are some negative effects but they’re reversible. And then class three recalls are fairly low harm – packaging errors, the fonts not large enough on the packaging instructions – things like that.” 

“We found that when it comes to severe defects – products that are really killing people, basically – it didn’t really matter that much how many women you had on the board. Eventually,  all the firms recalled those products. You don’t really have much of a choice at some point.”  

“But for high severity defects, when there were women on the board, these defective products were recalled much sooner. The time from the moment the company is aware of the defect to the moment they were recalled was reduced by something like 35 percent with women on the board. They were recalling it almost a month earlier. That can have a real life impact. And hiding the fact of a defect is often a crime.” 

“So we did find that when you had women on boards, they are more quick to react and recall hazardous products. That was an important finding.”

“We also found that companies with women on boards had more recalls for the less severe category.”

“And having just one woman on the board didn’t change anything. The board really needed to have at least two women before you start seeing those effects on the speed of the recalls.”

What is it about women that make corporations more responsive?

“That’s the big question. There is some conjecturing about what happens.” 

“What is it about women that would lead boards to make different sorts of decisions? One explanation is gender differences in risk aversion. You can go down the whole nature versus nurture debate. But there is quite a lot of research that shows that for women to access these positions, they need to have managed risks in their careers pretty carefully. As women climb up the corporate ladder, they tend to get punished more harshly if they make mistakes. They are keenly aware of risks because they can’t afford to make mistakes.” 

“We can debate whether they have that greater sensitivity to risk because that’s how they’re born or because that’s their experience. But there seems to be greater risk aversion among women.”  

“Second is they might have different life experiences. Women, and even women who aspire to corporate boards, tend to be primarily responsible for care of elders and children. 

So they might have sensitivity to, in our case, products harming people and health related issues.” 

“Given the risk aversion and different life experiences, as they are debating on the board, they can see a wider range of potential negative outcomes.” 

“Research also suggests that women sense a greater probability of failure. Men are a little bit more overconfident, thinking – everything is going to be okay.”

“Another factor is that men can change by being in the presence of women. Men say they behave differently when there are women in the room. Perhaps there is a greater sensitivity and less overconfidence.”

“And sometimes different perspectives in the room can lead to more discussions, can slow down decision making processes which tends to reduce risk as well.” 

“Those are three broad explanations. The women who join are risk averse. The men change in the presence of women. And third, diversity makes a difference. And a combination of those three.”

Are there any studies other than your product recall study that supports the idea that more women leads to less corporate crime?

“Yes, there are a range of them. There is one that came out recently that shows that when more women are on the board it reduces the frequency of misconduct by European banks. They find that as more women join the boards, the frequency of being fined by U.S. regulators decreases. They also find that having just one woman on the board is not sufficient. You need at least two women.” 

“Another study is one that looked at the frequency of fraud at Chinese firms over a period of ten years. It found that increasing the number of women by ten percent reduces the likelihood of fraud by fifteen percent.”

“Many of these studies don’t explain why this is happening. They are relying on these same sorts of arguments around risk aversion and overconfidence.” 

Why the focus on the board and not the executive suite?

“There are studies out there that have looked at top management teams. There is a study just out recently finding that female CFOs have less fraud at their companies. We are seeing these patterns at multiple levels. The boards are supposed to assess risks. They can temper management’s preference for risk.” 

“Boards can also affect culture at firms by questions they ask. There is the idea of setting a tone based on questions they have for management. That’s one reason why gender diversity on the board makes a difference.”

Boeing had women on the board of directors when two 737 MAX planes went down due to corporate criminal behavior and 347 people were killed. When you see a case like Boeing, do you question whether the culture of a corporation overcomes whatever positive aspects a woman brings to a board?

“The work that I do looks at patterns over a period of time. It’s not like a guarantee that if you have women on the board that no corporate crime will take place. You can always find exceptions.” 

According to one survey, in 2020, about 29 percent of corporate board seats at North American and European corporations were held by women. That’s up from 24 percent two years ago. Our reporting shows that corporate crime is on the increase recently, how do you explain it?

“I like that puzzle. If I had to throw explanations at it, I would say that that is the average. Some firms have close to 50 percent of their board seats held by women. That means others are lagging.” 

“Also, firms are under pressure to put women on boards. When they put women on boards, they don’t always empower them.” 

“There are some interesting studies out there that show that some firms just add an extra board seat when they add a woman. They are not replacing a man and adding a woman. Or when they put women on boards, they are not putting them on powerful committees like the audit committee.”

“Where are they appointing these women and to what extent are they being heard? And maybe corporate crime is increasing across the board, but maybe less quickly because of women on boards.”

“It could also be that regulators are just more attentive. And in product recalls, I believe the number of companies issuing product recalls recently has shot up quite a bit.”

There are many women coming up the corporate criminal defense ranks. And we have interviewed many of them in recent months. And there is not much of a discernible difference in how they defend corporate criminals from how the men defend corporate criminals. On the record, they generally won’t say that a woman in those positions makes a difference in terms of deterring or ameliorating corporate wrongdoing. 

Do you have doubts about the idea that women in corporate cultures can make a significant difference?

“It’s uncomfortable to make the assumption that women in general will be more risk averse. We are assuming women are going to be more risk averse, but it is not consistently the case. It’s not like we are saying women are like this and men are like that.”

[For the complete q/a format Interview with Corinne Post, see 39 Corporate Crime Reporter 39(13), September 10, 2022, print edition only.]