What Makes Better Boards? A Closer Look at Diversity and Ownership

Abstract

This study investigates the joint effect of corporate ownership and board of directors' diversity configurations on the success of strategic merger and acquisition (M&A) decisions. Board diversity is defined as the extent to which its demographic diversity as measured by the culture, nationality, gender and experience of its directors complements its statutory diversity. A theoretical framework linking ownership, board diversity and M&A strategic decision making is proposed and tested. Based on a sample of 289 M&A decisions undertaken by Canadian firms over the period 2000-2007, demographic diversity is found to have a clear and non-linear effect on M&A performance while statutory diversity is of limited influence. Ownership is found to influence the effect of diversity, making the relation finer and more precise. This has practical implications. First, statutory diversity is not sufficient for well-performing boards. Also, ownership is an important factor. The most advocated board diversity aimed at insuring the board's independence is not valid across all ownership configurations. From a public policy perspective, results provide support for the principles-based approach in governance. Governance regimes should encourage the search for a balance between board diversity and the need for cohesion that best serves the firm's purpose and obligations.

The Effect of Board Diversity on Earnings Quality: An Empirical Study of Listed Firms in Vietnam

“…Second, based on resource dependence theory, demographic differences between board members within a board (diversity in boards) are seen as a key resource that influences the strategy‐making process (Pfeffer and Salancik ; Ben‐Amar et al. ). In so doing, diversity in boards may only indirectly influence earnings quality.…”

“…A few studies have attempted to combine the demographic or structural dimensions of board of directors into a single examination to formulate a complete picture of demographic as well as structural diversity (see Ben‐Amar et al. ; Hafsi and Turgut ).…”

“…Second, unlike Hafsi and Turgut (), who combined several attributes into a single index with equal weights to construct diversity‐of‐boards and diversity‐in‐boards indices, which may produce unexpected drawbacks (Ben‐Amar et al. ), we applied both weighted and unweighted methods to measure diversity‐in‐boards and diversity‐of‐boards indices. A survey questionnaire provides executives’ perceptions about various attributes relating to board diversity to determine their importance.…”

Independent directors' background and CSR disclosure

“…This ensures more effective control of the senior management (Hermalin & Weisbach, 1998) and has a decisive influence on the design of strategies for CSR actions or disclosure (Khan, Muttakin, & Siddiqui, 2013). Ben-Amar, Francoeur, Hafsi, & Labelle, 2013) tend to recommend increasing board diversity, regarding knowledge and experience among other characteristics, arguing that such diversity both enhances information resources and broadens the cognitive and behavioural range of the board. Nevertheless, as far as we are aware, no previous studies have considered how relevance diversity among these directors might be.…”

Sustainable Entrepreneurship in China

“…Adams and Ferreira (2009) find a positive and significant relationship between gender diversity and the overall effectiveness of the board. Ben-Amar et al (2013) argue that joint stock companies are likely to have more diverse boards when compared with institutionally controlled companies. Dobbin and Jung (2011) find that more diverse boards are associated with higher levels of institutional ownership due to the pressure from stakeholders.…”