Gender Diversity on the Board - BI Norwegian Business School
Gender Diversity on the Board - BI Norwegian Business School
Gender Diversity on the Board - BI Norwegian Business School
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GRA 19001 Master Thesis<br />
<strong>the</strong> firm, and will act more resp<strong>on</strong>sibly as a board member. On <strong>the</strong> o<strong>the</strong>r hand, agency<br />
<strong>the</strong>ory suggests that self-m<strong>on</strong>itoring does not work, and hence <strong>the</strong> CEO should not be<br />
part of <strong>the</strong> board which is supposed to m<strong>on</strong>itor him (Bøhren & Strøm, 2009).<br />
<strong>Norwegian</strong> n<strong>on</strong>listed firms more often have <strong>the</strong>ir CEO as <strong>the</strong> chairman (Berzins,<br />
Bøhren, & Rydland, 2008). However, <strong>the</strong> fact that we are more interested in large<br />
n<strong>on</strong>listed firms, where CEO as <strong>the</strong> chairman is less comm<strong>on</strong>, we do not pay much<br />
attenti<strong>on</strong> to this.<br />
Several factors determine a board’s effectiveness as a decisi<strong>on</strong>-maker. <strong>Board</strong> size and<br />
diversity affect <strong>the</strong> decisiveness-mechanism. If <strong>the</strong> board is large, <strong>on</strong>e gets more input<br />
and a wider opportunity set. However, <strong>the</strong>re exists a tradeoff between this opportunity<br />
set and potential c<strong>on</strong>flicts in decisi<strong>on</strong>-making (Buchanan & Tullock, 1962). In smaller<br />
boards decisi<strong>on</strong>-time decreases, but more c<strong>on</strong>venti<strong>on</strong>al decisi<strong>on</strong>s are made (Gjølberg &<br />
Nordhaug, 1996). Hence, board design is critical for <strong>the</strong> board’s ability to make good<br />
decisi<strong>on</strong>s. In this c<strong>on</strong>text, <strong>the</strong> questi<strong>on</strong> is whe<strong>the</strong>r <strong>the</strong> board should be big and diverse,<br />
such that all informati<strong>on</strong> is available, or if <strong>the</strong> board should be small and homogenous<br />
such that decisi<strong>on</strong>s are made quickly and effectively. This decisiveness-mechanism will<br />
be our main focus throughout our <strong>the</strong>sis.<br />
As menti<strong>on</strong>ed, gender-mix could be <strong>on</strong>e way of creating diversity, without necessarily<br />
increasing board size. Carter et. al (2003) states that diversity is believed to produce a<br />
more effective problem-solving. Although heterogeneity may lead to more c<strong>on</strong>flicts<br />
during <strong>the</strong> process, <strong>the</strong> variety of perspectives causes decisi<strong>on</strong>-makers to evaluate more<br />
alternatives, and more carefully explore <strong>the</strong>ir c<strong>on</strong>sequences. Hence, gender diversity can<br />
increase board independence, both in terms of better m<strong>on</strong>itoring and a wider<br />
opportunity set. The empirical paper of Adams and Ferreira (2008) find that diverse<br />
boards might be better m<strong>on</strong>itors; directors (both male and female) attend more<br />
meetings, schedule more meetings, and a larger fracti<strong>on</strong> of <strong>the</strong>ir compensati<strong>on</strong> is equity<br />
based. In o<strong>the</strong>r <strong>the</strong>oretical papers it is argued that too much board m<strong>on</strong>itoring can<br />
decrease shareholder value (e.g. Almazan and Suarez (2003) and Adams and Ferreira<br />
(2007)). There exists a c<strong>on</strong>flict between m<strong>on</strong>itoring and advice. Since <strong>the</strong> board’s role is<br />
to m<strong>on</strong>itor and give advice to <strong>the</strong> management, <strong>the</strong> CEO faces a tradeoff in disclosing<br />
informati<strong>on</strong> to <strong>the</strong> board. If he reveals his informati<strong>on</strong>, he gets better advice. However, a<br />
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