Antecedents of Board Composition: The Role of Nomination Committees

Abstract

Manuscript Type: Empirical Research Question/Issue: The global financial crisis in 2008 has generated increasing recognition of the importance of board diversity reflected amidst the capabilities and skills of directors on a board. As the primary institutional mechanism designed to strengthen the director selection process, nomination committees (NCs) occupy centre stage of this discussion. However, there is a dearth of studies which focus either specifically on NCs or on diversity as a board composition outcome. In this study, we examine the research question of the likely antecedents in terms of NC characteristics of two board composition outcomes, i.e., diversity as variety in terms of gender and nationality, and diversity as separation in terms of a board demographic faultline. Research Findings/Insights: For a panel of FTSE350 companies from 1999 to 2008, we find that the increasing presence on the NC of females or non‐British nationals is likely to have a positive impact on the level of board gender and nationality diversity, respectively. In addition, we report that the presence of the chief executive officer (CEO) on the NC is found to interact with the NC independence, as a result of which a board demographic faultline is likely to emerge. Theoretical/Academic Implications: We bring together three concepts from social psychology research to create the theoretical basis for our study of the influence of NCs on board diversity: these are similarity‐attraction, homosocial reproduction, and social identity. The strong empirical findings suggest that these socio‐psychological dimensions are applicable to the operations of NCs, which has implications for the outcomes of the director nomination and selection process, and consequently also for board composition. Practitioner/Policy Implications: Our research indicates that NC characteristics are significant antecedents of board diversity, hence composition of the NC is an important step and pre‐requisite for assembling a diverse board. For example, appointing females and/or non‐nationals to the NC increases the likelihood of greater representation of females and/or non‐nationals on the entire board. At the same time, our evidence suggests that the presence of the CEO amidst the majority of non‐executive directors (NEDs) on the NC is detrimental for board cohesiveness.

Searching for Women on Boards: An Analysis from the Supply and Demand Perspective

“…High levels of transparency create higher pressure on companies to comply, and ultimately to cope with any kind of biases in selection or treatment. For instance, nomination committees influence gender diversity in boards (Kaczmarek, Kimino, & Pye, 2012). The presence of women can have direct effects on corporate reputation (Bernardi, Bosco, & Columb, 2009;De Anca & Gabaldon, 2014b) as well as CSR actions (Bear, Rahman, & Post, 2010;Boulouta, 2013), and corporate sustainability (Galbreath, 2011).…”

Erecting Walls Versus Tearing Them Down: Inclusion and the (False) Paradox of Diversity in Times of Economic Upheaval

“…However, studies have shown that there are some positive effects of the crisis for diversity. James (2014) found that providing work-life balance mechanisms for employees, such as child care, is consistent with improvements in firm performance; Kaczmarek et al (2012) noted that in the business context there is value in diversity; and Briskin (2014) suggested that that gender equality can be a way out of the quagmire of austerity for unions. An example of positive outcomes is the tendency of some boards to increase diversity among board members during financially difficult times; 'one is a token, two is a presence, three is a voice' (Gyapong et al, 2016: 373).…”

“…For example, unemployment filing requirements for women and youth were relaxed in some countries, such as Finland, France, Portugal, and Latvia (Leschke, 2012). James (2014) found that providing work-life balance mechanisms for employees, such as child care, is consistent with improvements in firm performance; Kaczmarek et al (2012) noted that in the business context there is value in diversity; and Briskin (2014) suggested that that gender equality can be a way out of the quagmire of austerity for unions. Diversity is seen by many as good for business, although it is still a hard sell (James, 2014).…”

Board monitoring of the chief financial officer: A review and research agenda

“…For instance, we do not know enough about the influence of structural board components, such as the number and independence of directors, as well as board committee structure, on the CFO. Despite first attempts to gain a better understanding of board selection committees (Kaczmarek, Kimino, & Pye, ), our knowledge on their importance for CFO selection is still limited. How do nomination committees, especially directors with financial expertise, define which CFO candidate shows the best fit with their firm and assess her potential to become a valuable member of its top team?…”