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Mandating Diversity on the Board of Directors: Do Investors Feel That Gender Quotas Result in Tokenism or Added Value for Firms?

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There is real debate between those who think we should be more diverse because it is the right thing to do and those who think we should be more diverse because it actually enhances shareholder value. Unless we get the second point across, and people believe it, we’re only going to have tokenism.

—Karen J. Curtin, executive vice president of Bank of America

Abstract

Under resource dependence theory, firms should benefit from diverse boards of directors. Ethical arguments also highlight that boards should be as diverse as the stakeholders and communities that they serve. In an attempt to increase diversity and women’s presence on boards of directors, legislative efforts have enacted gender quotas. We examine how such efforts are perceived by U.S. market participants. We expect that when a firm operating under a quota law meets only the minimum requirement, investors will view the female directors through the lens of token status theory and invest fewer resources in that firm than they will in a firm that exceeds the quota minimum or has the same composition but is not under a quota law. Through an experiment with 207 MTurk participants, we manipulated whether a firm was or was not under a quota law and whether the number of female board members was just at or exceeded the law’s minimum compliance. We find evidence that under a quota system, U.S. market participants tend to view female directors as tokens when the firm is just at the quota minimum, and these perceptions both affect their view of the firm’s prospects and negatively influence investment decisions. Importantly, however, we find that these negative effects can be offset and that resource dependence theory holds if the firm exceeds the quota, signaling that the hiring of female directors is not simply compliance-dependent and subsequently leading U.S. market participants to invest more resources in the firm.

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Data Availability

Data is available upon request.

Notes

  1. While MTurk participants are commonly used as a proxy for nonprofessional investors in experimental research (e.g., Farkas & Murthy, 2014; Rennekamp, 2012; Trinkle et al., 2015; Van der Heijden, 2013), we acknowledge that experimental participants making investment decisions with a hypothetical amount of funds is not a perfect substitute for investors using their own money.

  2. Hoobler et al. (2018) conduct a meta-analysis on 73 of these studies. Post and Byron (2015) conduct a meta-analysis on 140 of such studies from over 30 individual countries.

  3. Had we used an extremely small board (four or five members), compliance would be set at one or two female members, a quantity already associated with tokenism, making it difficult to identify the quota norm effect. Changing the percentage of females on the board across samples would have introduced confounding effects. Using larger boards allowed us to increase the number of female members from compliance to above compliance while holding total female representation constant at 20%.

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Acknowledgements

We appreciate the insightful comments provided from the two anonymous reviewers and Jeroen Veldman (Section Editor).

Funding

These studies were funded by the University of Nevada, Reno’s Accounting Circle Fund.

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  1. College of Business, University of Nevada, Reno, 1664 N. Virginia Street, Reno, NV, 89557, USA

    Jessica M. Rixom, Mark Jackson & Brett A. Rixom

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  1. Jessica M. Rixom
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Correspondence to Jessica M. Rixom.

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Rixom, J.M., Jackson, M. & Rixom, B.A. Mandating Diversity on the Board of Directors: Do Investors Feel That Gender Quotas Result in Tokenism or Added Value for Firms?. J Bus Ethics 182, 679–697 (2023). https://doi.org/10.1007/s10551-021-05030-9

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