Abstract
Despite the significant interest in gender diversity in the boardroom from academics, government officials, and corporate strategists, and that women are qualified to positively influence a company's strategic direction and contribute to its growth, they are underrepresented in senior management and board positions. This chapter explored the relationship between corporate governance and gender diversity. It discussed board diversity in general and gender diversity on corporate boards in several countries, highlighting the benefits of gender diversity on corporate boards. It concludes that several measures can help increase the number of women on corporate boards, including mandatory quotas, political will and support, commitments by companies, codes of corporate governance, and government incentives such as tax breaks and recognition for companies promoting gender diversity, noting that a gender-diversified corporate boardroom is a balanced board essential for good and ethical business sense.
TopIntroduction
A company may be conceptualised as a web of agreements between stakeholders, such as shareholders and managers. This is often the case when investors possess financial resources but lack the expertise to oversee business operations (Shleifer & Vishny, 1997). To address this, parties enter contractual arrangements whereby shareholders provide funding in exchange for ownership rights and control over management decisions. The other party to the agreement is the Board of Directors, who act as agents of the company. According to Section 269(1) of the Nigerian Companies and Allied Matters Act [CAMA] (2020), an individual recognised as a company director is someone officially appointed to oversee and govern the operations of a company registered under the Act. According to Section 305 (1) of CAMA, a company director is held to a fiduciary duty towards the company and must act with the highest level of honesty and loyalty in any transaction or activity on its behalf. A director must refrain from engaging in activities that create a potential conflict of interest with the organisation concerning contractual agreements (Jensen & Meckling, 1972).
The origin of Corporate Governance can be traced back to the perspective of Berle and Means (1932), who asserted that managers tend to prioritise their interests instead of safeguarding the interests of shareholders. Corporate Governance is the term commonly used to refer to the methods utilised to maintain equilibrium between the competing agendas of managers and shareholders (Garay & Gonzalez, 2005). The concept also encompasses individuals’ responsibility to employ a mechanism that mitigates the principal-agent problem (Yegon et al., 2014). Smith (1901) observed that separating ownership from the control of a corporation results in a lack of motivation for its managers to perform efficiently. The Agency theory is one of the theories of corporate governance concerned with elucidating the dynamics of principal-agent interactions in situations where their interests may conflict. Agency theory seeks to investigate the various conflicts that can arise from this relationship and the strategies that can be employed to align the interests of both parties. McColgan (2001) noted that the agency problem arises from the inability to establish a comprehensive contract that encompasses all actions undertaken by the agent on behalf of the principal, which impacts both parties. Ekundayo and James (2015) assert that Agency theory is founded on several fundamental presumptions, namely that agents may not consistently act in the best interests of their principals, the primary objective of corporations is to maximise wealth, and agents are residual risk-takers and lack company ownership.
Homayoun & Homayoun (2015) highlighted that various Corporate Governance methodologies have been proposed to address the agency problem. Nonetheless, addressing the agency problem gives rise to agency costs. To mitigate agency costs, it is recommended that the Company adopts efficient Corporate Governance mechanisms to minimise the divergence of interests between the management and shareholders (Sehrawat et al., 2019).
Key Terms in this Chapter
Gender Diversity: Gender diversity in the workplace is the equal representation of men and women in terms of hiring, pay, and promotion. This means there is no bias or prejudice against either gender regarding these aspects of employment.
Board Diversity: The concept of board diversity refers to the collective range of backgrounds, experiences, and perspectives that board directors possess. By considering factors such as ethnicity, race, gender, age, and independence, board diversity aims to create a more heterogeneous group of directors.
Board of Directors: A board of directors is a group of people whom shareholders elect to set company policy and oversee the company’s management. They are responsible for representing the interests of the shareholders and providing advice and guidance to the CEO and executive team.
Corporate Governance: The term “corporate governance” encompasses the internal and external factors that affect the interests of a company's stakeholders, including shareholders, customers, suppliers, government regulators and management. It combines rules, processes and laws by which businesses operate, regulate and control.
Gender Equality: Gender equality refers to equal rights, opportunities, and outcomes for people of different genders and eliminating discrimination, violence and stereotypes based on gender, wherein individuals of all genders are endowed with equal privileges, duties, and prospects.
European Commission: The European Commission is the European Union's (EU) executive body responsible for proposing new legislation, implementing decisions and policies, and overseeing the EU budget. It also provides legal solutions to business and trade issues between EU countries and represents the EU internationally.
Firm Value: The value of a firm is the amount that one must pay to buy or take over the business entity. This value can be determined based on the company’s book or market value. Generally, a firm's value refers to the company's market value. The traditional model of a firm's value is linked with shareholders' value, but some scholars have expanded this model to include all stakeholders.
Firm Performance: Firm performance can include different aspects of an organisation’s performance, such as efficiently exploiting its resources and achieving desired outcomes. It is focused on the capability and ability of a company to meet its objectives and meet the needs of its users relative to its competitors.