Corporate Governance and Diversity in Boardrooms

This introduction aims at offering a synopsis of the most relevant topics proposed in this book. This volume is composed by two main parts. The first one (Chapters 2, 3, and 4) presents an extensive review of the literature on (i) the board, (ii) the board diversity, and (iii) the board diversity and its effects on the firm, by reviewing the most relevant theoretical frameworks used to investigate on the board diversity phenomenon. The second part (Chapters 5 and 6) presents the empirical investigation that was conducted on a sample of European listed companies. This second part describes the data and the empirical methodology to finally present and discuss the results, the theoretical and managerial implications and propose a future research agenda.

This chapter aims to set the ground, providing a brief definition of the corporate governance according to worldwide practices and focusing on the role and the functions of the board of directors. To reach this goal, a punctual review of the different theoretical frameworks coping with this topic is provided, putting in evidence the main differences as well as the principal points in common. Specifically, the agency theory, the stakeholder theory, the stewardship theory, the resource dependence theory, and the institutional theory are analysed. Moreover, the role of BoDs is analysed together with the features and the overview of “good” corporate governance practices according to existing literature and practice.

The international literature has deepened the importance of analysing the composition of BoDs in order to understand their effectiveness and efficiency. Along this path of research, this chapter aims to investigate the board diversity reviewing the main contributes developed on this topic. Specifically, the chapter illustrates the different sources in terms of diversity in the boardrooms, putting in evidence the role of regulations and institutional investors at promoting the growth of this diversity. The analysis is proposed through a cost-benefit approach, to illustrate the potential advantages and the relative risks connected to the diversity in BoDs.

This chapter proposes a systematization of the different impacts of board diversity on the firm. Since the board acts as the main governing body, its characteristics affect its way of operating and, as a consequence, its outcomes. The authors review extant literature on the various types of effects that board diversity generates in relation to the corporate social performance of the firm, the organizational performance, the firm’s innovation, and the risks faced by the firm. Furthermore, the chapter provides a deeper focus on the effects of the board diversity on the firm’s financial performance, being also propaedeutic to the development of a new conceptual framework proposed by the authors and illustrated in Chapter 5.

This chapter develops the empirical analysis with the final aim to support the new conceptual model proposed. Specifically, to construct the model, we analyse the various features of diversity (namely age, tenure, gender, nationality, level of education, educational background, directorship experience, role, independence, remuneration) and, for each diversity aspect, an index of diversity has been created. Since each diversity aspect may be categorical or quantitative, different measures of diversity have been considered. Precisely, for categorical variables we use the (relative) entropy, while for quantitative variables, we use the standard deviation. The impact of these variables on the firm performance is tested through both market-based and accounting-based measures. In order to catch the long-term effects, the analysis has been conducted over a 9-year period, from 2010 to 2018. After providing descriptive statistics, correlations, and results, the chapter ends with some conclusions about the further developments to guide future research for scholars and academics as well as with some guidelines for practitioners interested in studying the good practices and the effectiveness of the board seen as a corporate governance mechanism.

This chapter summarizes the most relevant outcomes of this work, discussing the main contributions for both researchers and policymakers. The chapter also highlights the limitation of this volume and provides some suggestions for opening up a research agenda for further investigation on the board diversity topic.