Limited progress? The effect of external pressure for board gender diversity on the increase of female directors

Research SummaryThis study explores how external pressure for board gender diversity influences the increase of female directors. We propose that while external pressure has a positive effect on the increase of female directors on boards, it heightens the salience of gender in new director selection, making incumbent male directors more likely to treat the new female directors as outgroup members and consequently more likely to add them through addition of board seats rather than substitution of male directors. We further predict that new female directors added through additional board seats are less likely to serve on major board committees than those added through substitution of male directors. Results from a large sample of S&P 1,500 firms during 2004 to 2015 provide support our theoretical predictions. Managerial SummaryOur study intends to enhance the understanding of how external pressure influences a firm's decision to increase the number of female directors on the board. We find that, although external pressure makes firms more likely to increase female directors, firms tend to do it through the addition of board seats rather than through the replacement of incumbent male directors to the extent that the increase is a response to the external pressure. Moreover, we find that new female directors added through addition of board seats are less likely to serve on major board committees than those added through replacement of male directors. These findings suggest that external pressure has a positive but limited effect on countering the gender bias on corporate boards toward female directors.