MASTER THESIS
Changing Female Representation in Management: The impact of political ideology on the effectiveness of a diversity policy.
Name: Annelijn Peters Student number: S3523500 Program: MSc Change Management
Supervisor: G.H.J. Berends Co-assessor: dr. B. C. Mitzinneck
Date: 13 July 2020 Word count: 11.551
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Abstract
Females in management positions has emerged as an increasingly relevant topic among scholars, because the number of female managers in the board of directors is still very low (Lückerath-Rovers, 2011). This paper examines the relationship between organizations that have implemented a diversity policy and the number of females in management positions with a moderating effect of the political ideology (liberal-conservative continuum) of the board of directors. I theorize that the relationship between organizations with a diversity policy influences the number of female managers, which can be strengthened by a liberal board and weakened by a conservative board. The hypotheses were tested using a panel dataset covering the S&P 500 firms from the period of 2000 till 2017. Results show support for the relationship between diversity policy and the number of female managers. However, no support was found for the proposed moderating effect of liberal boards and conservative boards.
Furthermore, only the control variable CEO duality seems to have a negative significant effect on the number of female managers.
Keywords: Diversity policy, female managers, management positions, political ideology, conservative boards, liberal boards, board of directors.
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Table of content
Abstract ... 1
1. Introduction ... 3
2. Literature review ... 6
2.1 Females in management positions ... 6
2.2 Diversity policy ... 6
2.3 The moderating effect of the political ideology of the board of directors ... 8
3. Methods ... 11
3.1 Data collection ... 11
3.3 Variable measurements ... 12
3.3.1 Dependent variable ... 12
3.3.2 Independent variable ... 12
3.3.3 Moderating variable ... 12
3.3.4 Control variables... 13
3.4 Data analysis ... 14
4. Results ... 16
4.1 Diagnostics... 16
4.2 Descriptive statistics ... 16
4.3 Hypotheses testing ... 17
4.4 Assumptions ... 20
5. Conclusion and Discussion ... 21
5.1 Conclusion ... 21
5.2 Discussion ... 21
5.2.1 Theoretical implications ... 21
5.2.2 Managerial implications ... 23
5.2.3 Limitations and directions for future research... 24
References ... 25
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1. Introduction
The past few years, scholarly interest in females on boards of directors and in senior management positions has increased, because a growing number of female managers are likely to lead to higher environmental, social and governance (ESG) performance (Lückerath-Rovers, 2011; Velte, 2016). This positive effect can be explained by the fact that females bring specific beliefs and values, which could lead to a greater orientation towards environmental and social performance (Bravo & Reguera- Alvarado, 2019). ESG performance is important to an organization, because it makes a positive contribution to the value of a firm (Fatemi et al., 2017). A way for organizations to increase the focus on ESG performance is to expand gender diversity in management positions (Di Miceli & Donaggio, 2018). Di Miceli and Donaggio (2018) explain that gender diversity provides “viewpoints of fully half the world’s population as a more realistic reflection of customers, communities and other stakeholder”
(p. 2). Ben-Galim et al. (2007) state that diversity in management positions promotes gender equality, meaning that females and males have equal opportunities to acquire management positions (Banahan
& Hasson, 2018).
To promote diversity and equal opportunities organizations often implement a diversity policy.
Organizations aim for increasing the representation of minorities and promotes equal opportunities within the workforce by using the diversity policy (Lambouths et al., 2019). Furthermore, a diversity policy helps to understand how a workforce is composed and whether it represents the market in which they operate (Ticker, 2006). This is important to know when recruiting and retaining employees (Ticker, 2006). Implementing a diversity policy is essential to improve opportunities for females in management positions, which is necessary, because females are underrepresented in management positions (Iversen & Rosenbluth, 2010). Females are underrepresented, because employers indicate that they run a greater risk with hiring female managers. For example, when females have children, they are more likely to work less (Iversen & Rosenbluth, 2010). Therefore, it is important to implement a diversity policy, as this policy will promote diversity and provide equal opportunities for females and males to operate in management positions.
However, the diversity policy should be aligned with the strategic direction of the organization to be effective (Noe et al., 2015). The strategic direction of the organization is determined by the board of directors as they are the highest body of the organization (Nganga et al., 2018). Moreover, the strategic direction of an organization decides about where the organizations wants to be in the future (Hamel
& Prahalad, 1989). The board of directors of each organization envisions a different future, something that affects the effectiveness of an organizations’ diversity policy. Some organizations are striving towards a diversity policy, to increase their ESG performance (Velte, 2016). Other organizations simply
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implement a diversity policy as a symbolistic gesture to gain legitimacy (Singh & Point, 2009). The way in which these organizations obtain their legitimacy is to conform to the dictates of existing audiences (Suchman, 1995). How the future of each organization looks like depends on the values and beliefs of the board of directors. It is the values and beliefs of the board of directors that guides the appropriate way of organizing that fits the objectives and values of the organization (Gupta, 2015). The values and beliefs of the board of directors also determine how the organization is managed as effectively and efficiently as possible (Syed, 2017). A proxy for the values and beliefs of the board of directors is political ideology (Chin et al., 2013). However, it remains unclear how the political ideology of the board of directors influences the effectiveness of a diversity policy, because no research has been done about this subject in previous literature (Carnahan & Greenwood, 2017). For that reason, it is important to look at the political ideology of the board of directors to determine when a diversity policy is effective.
The political ideology of the board of directors is defined by Erikson and Tedin (2019) as “a set of beliefs about the proper order of society and how it can be achieved” (p.68). The political ideology of the board of directors is often conceptualized as opposite ends of the liberal-conservative continuum (Choma et al., 2012). Liberalism pursues the idea that human activities determine the fate of men and women in the social order. Therefore, freedom is a key category in liberalism (Jahn, 2011). Furthermore, liberal boards are likely to be more sensitive to social issues, such as diversity (Chin et al., 2013). In contrast, conservatives consider inequality as given by nature, meaning that traditions and the social order place men and women in the hierarchical order to ensure that society lives in harmony with each other (Jahn, 2011). The liberal-conservative continuum is used to provide a more systematic measure of political ideologies across organizations (Sanders, 1986). This is needed, because research has investigated that moral reasoning varies among liberalists and conservatists (Feldman & Johnston, 2014). Liberals’ moral reasoning usually comes from care and fairness, while conservatives construct moral reasoning come from loyalty, authority and purity (Graham et al., 2009). Therefore, being aware of the political ideology of the board of directors is essential to understand decision-making about diversity.
This paper highlights two important gaps. The first gap is that it remains unclear how the political ideology of the board of directors influence the effectiveness of a diversity policy (Carnahan &
Greenwood, 2017). The second gap is the need to explore the political ideology of the board of directors and how this can influence the number of female managers, because how this phenomenon can influence gender inequality remains unexplored (Carnahan & Greenwood, 2017). It is important to address female managers, because it is well-known that females are still underrepresented in management positions (Iversen & Rosenbluth, 2010). To maximize the contribution to existing literature, this paper aims to develop an integrated understanding of diversity policy and female
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managers by providing insights into the political ideology of the board of directors. These insights will better help to understand the diversity policy and how its effectiveness can be influenced. The research question in this study is therefore: “When does the political ideology of the board of directors influence the effectiveness of a diversity policy?”
This research question is investigated by means of a panel data regression within a sample of the S&P 500 firms in the period 2000-2017. Existing data from Eikon was gathered to test diversity policy and the number of female managers. New data about the political ideology is retrieved from DIME, from which a new dataset has been created. Results of this paper show that a significant relationship has been found for having a diversity policy on the number of female managers. However, no significant relationship has been found for the proposed moderating effect of political ideology, for either conservatism or liberalism. The implication for theory is that this paper contributes to existing literature by adding novel and relevant insights into how a diversity policy affects the number of female managers. How the proxy political ideology (the liberal-conservative continuum) influence this relationship could pave the road for future research.
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2. Literature review
2.1 Females in management positions
Zhuwao et al. (2019) argues that the presence of females in management positions provide new perspectives. Fondas and Sassalos (2000) clarify this by arguing that females can improve decision- making by bringing different perspectives and opinions to a discussion. Organizations make better decisions when they consider more perspectives (Lückerath-Rovers, 2011). Furthermore, females show more interpersonally oriented behaviour than males, which means that females have a better understanding of consumer behaviour, customer needs and the opportunities that organizations can take to meet these needs (Ye et al., 2016; Brennan & McCafferty, 1997). In addition, females ensure that more attention is paid to ESG performance, because their specific values and beliefs lead to a greater orientation towards environmental and social performance (Bravo & Reguera-Alvarado, 2019).
Nevertheless, given the positive effects of female presence, they are still considered to be less qualified and less competent for many top-management positions (Kundu & Mor, 2017). This means that females cannot break through the glass ceiling to be represented in management positions (Pichler et al., 2008). According to Heilman (2001) glass ceiling is defined as: “the invisible barriers that prevent women from reaching the upper echelons of management” (p.659). The glass ceiling is argued to be stronger at management level than at lower levels in the organization (Cotter et al., 2001). This is because Cotter et al. (2001) are “assuming that a sequential process with a constant gender disadvantage for promotions at each level will accumulate over the hierarchy so that gender gaps will be wider at higher levels” (p. 660). The glass ceiling effect occurs at some point in a females’ career, preventing females from climbing the organizational ladder (Morrison et al., 1987). Therefore, females are underrepresented in management positions. This underrepresentation of females is because employers think females will work less if they have children (Iversen & Rosenbluth, 2010). Due to the underrepresentation of females in management positions, it is imperative that employers make special efforts to hire and promote qualified women (Carnahan & Greenwood, 2017). Hiring and promoting these qualified females Is likely to lead to higher ESG performance, which in turn contributes to the value of the firm (Velte, 2016; Fatemi et al., 2017). Di Miceli and Donaggio (2018) state that organizations can increase the focus on ESG performance by expanding diversity in management positions. Thus, hiring females ensures that there is more diversity in management positions.
2.2 Diversity policy
To offer equal opportunities to everyone in the organization and to create diversity, the organization must invest in a diversity policy. The diversity policy is aimed at tackling discrimination and inequality at all levels of the organization (Dickens, 2005). Tackling discrimination and inequality in the workforce
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ensures that females and males have equal opportunities to operate in management positions. This results in a better balance between women and men, which is called a diverse management. Diversity in management can increase external legitimacy, making the organization more attractive to talented employees (Hambrick et al., 2008). These talented employees are more attracted to the company, because diversity in management offers opportunities and a working environment without discrimination (Ng & Burke, 2005). Thus, organizations that have a diversity policy could receive more positive responses in comparison with organizations that only communicate a more traditional policy on equal opportunities at work (Williams & Bauer, 1994). In short, improving diversity could be seen as an absolute necessity for the organization (Chin et al., 2013).
As mentioned before, an organization’s diversity policy is aimed at creating a balance between female and male and attracting and retaining female managers (Dickens, 2005). However, in order to attract these female managers, it is important that an organization includes certain tactics in its diversity policy (Wittenberg-Cox & Maitland, 2009). These tactics allow females to overcome the barriers they are currently facing to get higher in the organization. This is necessary, because previous research indicates that female managers have to overcome more barriers compared to male managers (Linehan &
scullion, 2008). One of the barriers that females currently face is that most organizations are more familiar with males in management positions. These organizations evaluate male managers as less risky. Thus, when it is not clear for organizations what the best option is, they automatically choose for males to perform the function (Reskin & McBrier, 2000). Another barrier is that females are seen as less intelligent and competent in comparison to male managers (Jones & Palmer, 2011). These barriers also explain why females are underrepresented in management positions (Iversen & Rosenbluth, 2010).
Organizations can help females overcome these barriers in three ways. First, organizations could be transparent about their diversity successes (Brink et al., 2010). Being transparent can inspire other organizations to invest in female managers, but it also shows to females that climbing the corporate ladder in the organization is possible (Brink et al., 2010). Thus, showing transparency about these successes shows that females can successfully perform a role in management positions. This encourages other organizations to also hire female managers, because organizations signal that hiring females for managerial functions are not that risky as previously thought (Brink et al., 2010). Second, organizations could provide a training (McDougall, 1996). During this training attention can be paid to leadership challenges and the competencies needed to operate in management positions. With this training females are empowered by building their confidence and ensures that females are being prepared to advancement up the corporate ladder (Wittenberg-Cox & Maitland, 2009). Finally, an organization can provide females with psychological support to overcome these barriers, which can be
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given through mentoring (Linehan & Scullion, 2008). The role of mentoring can stimulate the career development of female managers in a way that females are supported in difficult situations, which they might experience on their way to advancement up the corporate ladder.
In order to successfully implement a diversity policy, diversity must be approached as a cultural change and defined as an organization-wide concern (Ballafkih, 2010). Thus, diversity could be seen as a strategy an organization can pursue to improve the representation of females in management positions (Llerena & Oltra, 2002). This requires a broad foundation, which means that the diversity policy should be incorporated throughout the whole organization (Ballafkih, 2010). Furthermore, a condition to successfully implement a diversity policy is the willingness of the organization to change norms, values and procedures (Ballafkih, 2010). The human resource department plays a major role in getting this done (Ballafkih, 2010). Managing diversity is a popular aspect within human resource management (HRM) (Williams & Bauer, 1994). As such, the tactics that are included in the diversity policy of an organization causes more equal opportunities between women and men. The previous arguments can be formally stated as follows:
H1: A diversity policy increases the number of females in management positions.
2.3 The moderating effect of the political ideology of the board of directors
Diversity among employees means differences in backgrounds, experience, language, perception, attitudes, but above all differences in knowledge and skills (Lauring, 2009). These differences contribute to knowledge sharing, which is an important aspect to improve the productivity of the organization. Thus, employees with diverse backgrounds contribute to an effective organization by bringing in their own perspectives, knowledge, ideas and experiences (Lauring, 2009). Kim and Starks (2015) argue that females in particular bring specific functional expertise to the board of directors, thereby improving firm performance.
Given these benefits, there are still some organizations that do not commit to their diversity policy.
This can be explained by the fact that decisions made by an organization must be consistent with the overall strategic direction of the organization. These decisions, to be more specific, should be in line with the objectives of an organization and the associated values that an organization pursues (Konrad et al., 2006). These values are intertwined with the political ideology of the board of directors. Political ideology is, according to Tedin (1987) defined as “an interrelated set of activities and values about the proper goals of society and how they should be achieved” (p.65). Other authors add that political ideology guides the actions of the board of directors and organizes their values and beliefs (Jost, 2006).
Thus, the political ideology of the board of directors will enter into their actions (Chin et al., 2013). As such, the political ideology influences whether organizations want to promote a diversity policy or not.
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There are a lot of political attitudes that a board of directors can take. Nevertheless, Choma et al.
(2012) state that the political ideology of the board of directors is often conceptualized as the opposite ends of the liberal-conservative continuum. In line with this statement is that Jost (2006) explains in his research that the liberal-conservative distinction is the most meaningful and useful way.
A liberal board of directors strives more for values about social justice and economic qualities and are more sensitive to social change, human rights, the environment and diversity (Schwartz, 1996). Liberals aim for diversity, which is essential to remain competitive (Bollinger, 2007). Furthermore, liberals pay more attention to the environment, social change and human rights, which contributes to the increase in ESG performance (Velte, 2016). Furthermore, liberal boards are striving for “positive” action, which involves removing barriers to the functioning of the labour market (Jewson & Mason, 1986). Liberals are doing this by using their power to pursue a social preference for less gender inequality (Chin et al., 2013). They also show this in the recruitment and selection process, because liberal board of directors are more motivated to view female job candidates, even though they are equally qualified as men, because liberals see gender inequality as a social problem that organizations must solve (Chin et al., 2013). This is related to the fact that liberal board of directors are less likely to believe that women lack the temperament needed to succeed in management positions (Eagly & Karau, 2002). As such, liberal boards strive for diversity in management positions and to remove barriers to enter the labour market. Thus:
H2: A liberal board strengthens the positive relationship between a diversity policy and the number of females in management positions.
In contrast to liberal boards, conservative boards value individualism, property rights and free markets (Detomasi, 2008). In addition, conservatives pay more attention to stability, order, respect for authority and business needs (Jost et al., 2003). As conservative boards pay more attention to these values, they are more associated with traditional approaches. One of these traditional approaches is that conservative directors prefer ‘agentic leadership’, which means that the leader is respected by subordinates (Matland & King, 2002). This is in line with the value of respect for authority. Agentic leadership is according to Eagly and Johnson (1990) primarily associated with men, which means that conservatives may view female leaders more negatively than liberals do (Carnahan & Greenwood, 2017). Another traditional approach is that conservative boards value the traditional division of household labour, with men working outside the house and women staying at home to take care of the children (Bolzendahl & Myers, 2004). As such, conservative directors prefer stability over change and desire to maintain the status quo, which involves that females are working inside the house (Jost et al., 2008). This means that conservatives are most likely to have a negative attitude to change and
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therefore will not support initiatives that help females to climb the corporate ladder. Instead, conservatives are more likely to support initiatives that are based solely on the perceived merits of a person (Hing et al, 2011).
In addition, conservatives are associated with uncertainty and risk avoidance (Jost et al.,2003). As mentioned before, many organizations are more familiar with male managers (Reskin & McBrier, 2000). This means that organizations that choose for male managers take less risk than if they chose for female managers. By choosing male managers, organizations show that they are more conservative in nature. As such, avoiding risk affects the number of female managers in an organization. The previous arguments can be formally stated as follows:
H3: A conservative board weakness the positive relationship between a diversity policy and the number of females in management positions.
Figure 1 shows the conceptual framework to test the three proposed hypotheses. This framework explains the direct relationship between diversity policy and the positive impact on female managers and the moderating effect of the political ideology of the board of directors on this relationship. The moderating effect of political ideology can be split into a liberal and a conservative board, proposing that the liberal board strengthens the relationship between diversity policy and female managers and a conservative board weakens this relationship. The control variables are taken into account to assess whether they affect the number of female managers.
Figure 1: Conceptual framework
H1: +
Diversity policy Female managers
Political ideology:
• A liberal board: (H2: +)
• A conservative board: (H3: -) Control variables:
• Sector
• Firm Size
• Firm performance
• Board Size
• Board Gender Diversity
• CEO duality
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3. Methods
3.1 Data collection
This research used data from multiple, existing sources, because none of the existing dataset had all the necessary data. The data about the variables were collected from Eikon, Wharton Research Data Services (WRDS), and from the Database on Ideology, Money in Politics and Elections (DIME).
The data on female managers, diversity policy and all the control variables, except firm size, came from Eikon. The control variable firm size, measured with the logarithm of the market value is retrieved from WRDS. The moderating variable (political ideology) was retrieved from DIME. The data retrieved from DIME has been mapped using fuzzy matching. Fuzzy matching was carried out to compare the political ideology of the board of directors and to link donations to the directors of the Standard & Poor’s 500 index (S&P 500). This index is a market-capitalization weighted index of the 500 largest United States publicly traded companies (Schnitzler, 2018). These donations are all obtained from individual political contributions, which according to prior studies can be seen as a form of participation (Snyder et al., 2003). In addition, this research assumes that the political donations reflect the political ideology of contributors (Chin et al., 2013). Therefore, using these political donations in the period 2000-2017 yields a valid indicator of the political ideology of the board of directors. The political ideology in this paper represents the liberals and conservatives, because the donations received are only from these two major parties.
A total of three assignments were executed to collect sufficient data about the political ideology. In these assignments the donations of contributors were verified by manually checking contributor names, contributor occupations, contributor employers and address information. The fuzzy matching procedure was necessary to have true matches and to avoid false positives in the final data set. From the used online sources, the online source Bloomberg was most often used to confirm the identity of the contributor. To ensure the validity of the data collected through the three assignments, manual checks of the matching procedure were performed by two independent coders. Each assignment was completed by resolving disagreements over the matching between the two coders. After the three assignments were completed and the disagreements were discussed and resolved, the data collection was completed and a new dataset was created to test the political ideology of the board of directors.
12 3.3 Variable measurements
3.3.1 Dependent variable
The dependent variable in this paper is the number of female managers. Following theory by Erhardt et al. (2003) this is measured as the percentage of female managers among the total managers in the organization. If there is a breakdown by category in percentage such as top, senior, middle or junior management, then this paper considers the percentage of middle female managers.
3.3.2 Independent variable
Diversity policy is a program or practice to promote diversity and equal opportunities within the workforce – includes information about the promotion of females. Diversity policy is measured on a binary scale, taking the value of “1” if an organization has implemented a policy that drives diversity and promotes equal opportunities, “0” otherwise (Al-Rahahleh, 2017).
3.3.3 Moderating variable
The moderating variable used in this research is the political ideology of the board of directors. As said before, the donations are received from two major parties: the liberals and conservatives. Therefore, political ideology is measured along the liberal-conservative continuum. This continuum is not comprehensive, but Jost (2006) explained that this continuum is the most meaningful and useful way to classify political attitudes.
To operationalize the ideology on the liberal-conservative continuum, the data is measured using the liberalism and conservatism score. The liberalism score is when the political ideology is more than 0.5 and the conservatism score is when the political ideology is lower than 0.5. Thus, the index scores are represented on a continuous scale where 0 is the most conservative and 1 is most liberal. The index score is discussed in the paper of Chin et al. (2013) using the liberalism index. This index consists of 1) the number of donations to democratic parties over the total number of donations, 2) the dollar amount of donations to democratic parties over the amount of donations, 3) the number of years that directors made donations over the total number of years that donations were made, and 4) the number of democratic recipients to which the executives made donations over the total number of recipients. These four scores are calculated following the exact method from Chin et al. (2013), “for example, consider an executive who (over the 10-year period), gave six gifts to democrats and two to republicans, gave 2000 dollars to democrats and 450 dollars to republicans; made gifts to democrats in three calendar years and gifts to republicans in two years; and gave five distinct democratic recipients and only one republican recipient” (p. 208).
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The scores of executives for each of the four indicators in this example are as follows:
Liberalism in number of donations (gifts) =6 + .1
8 + .2= .74
Liberalism in dollar value of donations (gifts) =2000 + .1
2450 + .2= .82
Liberalism in number of years (gifts) =3 + .1
5 + .2= .60
Liberalism in number of recipients =5 + .1 6 + .2= .82
These four scores are included, because Chin et al. (2013) mention that: “The inclusion of the four indicators minimizes the risk of assigning ideology scores on the basis of incidental or token behaviours”
(p. 208). These four indicators are measured over a 10-year rolling window. This rolling window has taken the average of the past 5 donations cycles. The score for 2014 was taken from 2014, 2012, 2010, 2008 and 2006 and for 2012 was this 2012, 2010, 2008, 2006 and 2004.
3.3.4 Control variables
This study takes the most important control variables into account, because these variables might affect the outcome that is in our principal interest (Strang, 2015).
The first control variable that is taken into account is sector. Hillman et al. (2007) argues that it is likely to expect that the nature of a sector has an impact on the representation of females in management positions. It is well known that in some sectors more female managers are employed than in other sectors. For example: female managers are traditionally more represented in HR practices, because they show more interpersonally oriented behaviour (Pichler et al., 2008; Ye et al., 2016). Thus, the sector in which the organization operates influences the number of female managers.
Second, the firm size is important to take into account. The larger an organization, the more the organization is driven by status competition, which means that large organizations want to meet the social expectations that the market demands (DiMaggio & Powell, 1983).This can be explained by the fact that larger organizations are more visible to society and therefore respond more socially. Smaller organizations are less under pressure because they are less visible in society (Udayasankar, 2008). In short, societal expectations among society put pressure on organizations to promote female representation in their management (Hillman et al., 2007). Firm size is measured by the market value (Dang et al., 2017). However, the market value is a highly skewed variable and therefore the logarithm of market value is used. By using the logarithm, the variable is transformed into a more normalized variable.
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This research controls for firm performance, as Staw et al. (1981) state that organizations with a higher business performance are more likely to have the capacity to explore new opportunities, because employees feel not threatened. In addition to the capacity of organizations with higher business performance, these organizations are also more open to various perspectives (Triana et al., 2014). This means that there is more attention paid to the different backgrounds within the company. Therefore, organizations with a higher business performance are more likely to benefit from diversity. The firm performance in this paper is measured by the return on assets (ROA) (Eisenberg et al., 1998).
Also, the board size can affect the outcome of diversity. This research examines the board size represented by the total number of board directors. Their role is to monitor the functioning of the organization and to take decisions that are in line with the strategic direction of the organization. In addition, these strategic decisions are necessary to support the organization (Nguyen et al., 2016).
According to Pearce and Zahra (1992) encompasses a large board of directors the variety of perspectives on the business strategy. Thus, a large board of directors consists of people with different backgrounds. Therefore, the larger the board size, the greater the diversity in the board of directors (Goodstein et al., 1994).
Board gender diversity is also a variable that must be taken into account. According to Carnahan and Greenwood (2017) is the board gender diversity measured based on the percentage of female board members. Once the percentage of female board members is known, the organization can demonstrate to the market that they pay attention to diversity and thus to equal opportunities between females and males. This is necessary because the market nowadays values diversity (Ellis & Keys, 2003).
Finally, CEO duality is important to take into account. In this research CEO duality means that the position of the CEO and the chairman of the board are served by the same person (Baliga et al., 1996).
According to Hambrick et al. (2015) are boards with more diversity (more female board members) more likely to support CEO duality. The explanation for this is that female board members tend to have more monitoring capacity and therefore CEO duality is more supported (Wang et al., 2019).
3.4 Data analysis
The data collected in this research was analyzed with Stata, the software for statistics and data science.
Given the longitudinal character of the data set, a panel data regression analysis was performed to test the three hypotheses. A panel data regression was chosen because a panel data regression includes both cross-sectional data and time series data, which means that in this research multiple companies were observed over a certain period of time (Baltagi, 2015). As mentioned before, this research collected data about all companies listed in the S&P 500 from 2000-2017. Thus, the same data is collected per organization within the same year, which means that there is a time variable and an ID
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variable in the dataset. The ID variable matches the name of the companies listed in the S&P 500.
These time and ID variables are important when performing a panel data regression to prevent the regression from containing serious errors. In addition, after dropping missing data and equalizing the sample size for all models, the final dataset contains 786 firms and 6.530 observations within an 18- year timeframe. Panel data is useful in this research, because it can analyze the change over time, meaning that the impact of implementing a diversity policy within an organization is easily recognizable after the year of implementation (Baltagi, 2015). Therefore, there is a time lag incorporated in the independent and moderator variable in all models. The time lag is one year, which is chosen because it is more reasonable to expect that if a board becomes more liberal or conservative more females will be hired after one-year lag. Thus, it is more likely to analyze a change after one-year lag.
The hypotheses were tested with a panel data regression analysis with a fixed effect. The use of fixed effects is determined after the Hausman test was performed. The null hypothesis in the Hausman test was that the preferred model was random effects and the alternative hypothesis was fixed effects. The result of the test showed a p-value of 0.00, which means that the Hausman test shows a significant result. Therefore, the null hypothesis can be rejected and fixed effects are more suitable in this data.
Fixed effects are useful in this paper to analyze the impact of variables that vary over time. Fixed effects explore the relationship between predictor and outcome variables within an organization and each organization has its own individual characteristics that may or may not affect the predictor variable (Torres-Reyna, 2007).
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4. Results
4.1 Diagnostics
A number of tests have been performed to demonstrate that the results in this paper are reliable. The first performed test is the time-fixed effects. This test looks at the effect of the years, because it is possible that certain things have happened over the years that can have an impact on the variables used in this paper. The result of the time-fixed effects test showed that all years equal zero and prob
> F is 0.0570, which means that no time-fixed effects are required. The second test performed is the heteroskedasticity test. The result of the test showed that there is heteroskedasticity present in the data, which means that there is unequal variability in the outcome of a regression model. To avoid the effect of outliners the panel data was winsorized, however, this did not help. Therefore, the robust option was added, which corrects the problem for heteroskedasticity. This option corrects the standard errors while keeping the regression coefficients the same, which means that the data is more reliable. The last diagnostic test is the Woolridge test for autocorrelation in panel data. The null hypothesis was no first order autocorrelation. The result of the test showed a p-value of 0.00, which means that the null hypothesis can be rejected. Thus, there is first-order autocorrelation present in the data. The standard errors are clustered to alleviate autocorrelation. As a result, the standard error has been adjusted for 105 clusters.
4.2 Descriptive statistics
The final dataset contains 632 observations. These observations were collected over the years 2000- 2017. During this period, 786 unique organizations were registered. Within this period, there were an average of 31 female managers among the total managers in the organization. Furthermore, most organizations in this dataset have implemented a diversity policy with a score of 0,96. The average board is slightly more conservative (liberalism score is 0.4633016). What is important to mention is that the market value to measure firm size is log-transformed to avoid excessive leverage from outliners. All these descriptive statistics can be found in table 1 on the next page.
17 Table 1: Descriptive statistics
The correlations and covariances between the main regression variables are shown in table 2. This table shows that a variable correlated with itself will always have a correlation coefficient of 1.
Furthermore, the number of females in management positions and the presence of a diversity policy within an organization are negatively correlated. The correlation between female managers and the political ideology of the board of directors is positively correlated. However, this is a weak correlation.
In addition, the number of female managers is negatively correlated with CEO duality. Both the board gender diversity and CEO duality are negatively correlated with the board size, whereas CEO duality is a stronger negative correlation. It is interesting that organizations that implemented a diversity policy are negatively correlated with the political ideology of the board of directors. More in-depth analysis will be given in the next section.
Table 2: correlations and covariances
4.3 Hypotheses testing
The three proposed hypotheses are tested based on four models, which is shown in table 3. These models are created to perform the regression with fixed effects. As mentioned before, the time frame is 2000 till 2017. The base of these models is the dependent variable (female managers) and in every model one or multiple variables are added. Model 1 contains the five control variables: firm size (market value log), firm performance (ROA), Board Size, Board Gender Diversity and CEO Duality. Since fixed effects looks at differences within organizations, the control variable sector is omitted as it does not change over time. Model 2 includes the five control variables, the independent variable (diversity
Variable Observations Mean Variance Min Max
Female Managers Diversity policy Liberalism score Conservatism Liberalism Sector
Firm Size (Market Value log) Firm performance (ROA) Board Size
Board Gender Diversity CEO Duality
632 622 620 632 620 632 569 631 620 616 617
31.11714 .9614148 .4633016 .4179904 .5468985 23.63924 9.314505 5.894927 11.61935 68.23171 15.57794
15.32906 .1927592 .1629156 .1033122 .0891081 10.36663 1.354465 7.079294 2.057402 21.99715 32.22043
.833 0 .0349178 .0349178 0.5 1 5.766835 -32.64911
5 8.022388
0
69 1 .9855903 0.5 .9855903 40 13.32992 41.92174 19 99.70726 90.74074
Variable 1 2 3 4 5 6 7 8 9 10
1. Female Managers
2. Diversity policy 3. Conservatism
4. Liberalism 5. Sector
6. Firm Size (Market Value log) 7. Firm performance (ROA) 8. Board Size
9. Board Gender Diversity 10. CEO Duality
1.0000 -0.0576
0.1253 -0.0016 -0.3147 0.0595 0.1091 0.0891 0.3738 -0.2405
1.0000 -0.0505 0.0292
0.1040 -0.1092 -0.0142 0.1071 0.0448 0.0378
1.0000 0.4171 0.0095 -0.0866 -0.0233 0.0271 0.1485 -0.0245
1.0000 -0.0327 -0.0103 -0.0154 -0.0946 0.1386 0.1526
1.0000 -0.1104 -0.0859 0.0583 -0.2346 0.1070
1.0000 0.1027 -0.1559 -0.0873 0.0682
1.0000 -0.0846 -0.0085 -0.0955
1.0000 -0.0409 -0.1824
1.0000
-0.0921 1.0000
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policy) and the political ideology of the board of directors. The independent variable takes only the value 1 or 0 to indicate the presence or absence of the policy. In model 3, the moderating variable liberalism is added. The board is more liberalism when the political ideology is more than 0.5. In model 4, the moderating variable conservatism is added. The board is more conservative when the political ideology is less than 0.5. Table 1 reports the results of these four regressions for the number of female managers in management positions. The regression coefficients, the robust standard errors (in parentheses), the number of observations, R-squared and the F-statistics are provided. This table is used to answer the three hypotheses.
Model 1 shows an R-square of 0.0221, which explains 2,21% of the total variance in the number of females in management positions. The F-statistic (1.02) in this model is not significant, which means that the model cannot be interpreted. After adding the independent and moderating variables in the models, the insignificance over the control variables remained unchanged.
Model 2 includes the five control variables, independent variable (diversity policy) and the political ideology of the board of directors (liberalism and conservatism). The R-square of model 2 is 0.0367, which explains 3,67% of the total variance in the number of females in management positions. Also, the F-statistic (1.56) shows that this model is significant (<.10). This model tests hypothesis 1, which states that a diversity policy increases the number of females in management positions. Examining the results in table 1 reveals that the effect of having a diversity policy on the number of female managers in management positions is positive and significant (p<.5). Therefore, as predicted by H1, the presence of a diversity policy within an organization increases the number of females in management positions.
Thus, H1 is supported.
Model 3 adds the interaction variable, which is the moderating effect of liberalism on the relationship between diversity policy and the number of female managers, into model 2. The R-square of model 3 is 0.0382, which means that 3,82% is explained by the total variance in the number of female managers. The F-statistic (1.73) is significant (p<.10). This model test hypothesis 2. The second hypothesis is that liberal boards strengthen the positive relationship between a diversity policy and the number of females in management positions. The results suggest that a positive relationship between diversity policy and female managers is not moderated by the political ideology of the board of directors. No empirical support was found for the positive moderating effect of liberal boards. The moderating effect is not significant and therefore, h2 is not supported.
Finally, model 4 adds the interaction variable, which is the moderating effect of conservatism on the relationship between diversity policy and female managers. The R-square of model 4 is 0.0422, which explains 4,22% of the total variance in the number of female managers. The F-statistic (2.63) is
19
significant (p<.05). This model test hypothesis 3. The third hypothesis is that conservative boards weakness the positive relationship between a diversity policy and the number of females in management positions. The results in table 1 shows that there is no significant relationship found between the diversity policy and the number of female managers. Since the moderating effect is insignificant, H3 is not supported.
Dependent variable: female managers.
* Significant at p <.10 (2-tailed test); ** Significant at p <.05 (2-tailed test); *** Significant at p <.01 (2-tailed test).
Table 3. Results from panel data regression
Variable Model 1 Model 2 Model 3 Model 4
Step 1: Diversity policy
Step 2: Political Ideology Liberalism score Conservatism score
Step 3: Firm Size (Market value log)
Firm performance (ROA) Board Size
Board Gender Diversity
CEO Duality
Diversity policy x liberalism score Diversity policy x conservatism score
Number of observations F-value
R2
.2142069 (.3905692)
-.013654 (.035653) -.0569528 (.1526608) .0027781 (.013676) -.0242668 (.0161495)
550 1.02 0.0221**
1.853036**
(.806524)
1.12169 (1.027981) .1153363 (1.463612) .1708174 (.3956195)
-.0171399 (.0354933)
-.09123 (.1520101) -.0011059
(.01339) -.0250526 (.0159495)
537 1.56*
0.0367**
6.853759 (4.154443)
10.62565 (6.902361)
.1699164 (.3896178) -.0187773
(.0355) -.0955774 (.1521339) -.0012763 (.0133731) -.0256235 (.0161161)
-9.520139 (6.962907)
537 1.73*
0.0382**
3.837062 (3.028016)
3.677976 (6.914943) .1476464 (.3787979) -.0040806 (.0351658) -.074802 (.1455584)
-.0005076 (.0131059) -.0287062*
(.0164173)
-6.464286 (6.770467)
535 2.63**
0.0422**
20 4.4 Assumptions
After performing the panel data regression, multicollinearity and normality were tested. The mean variance inflation factor (VIF) indicates if multicollinearity is present between two or more variables.
In calculating the VIF of the model, the variable sector gave a VIF of 13498.88. This is extremely high and is therefore omitted in all calculations. This test confirmed that it was good not to include the variable sector in this paper due to multicollinearity. Also, Stata indicated that this variable could not be included in the regression. The mean VIF of the other variables is 3,96, which means that the degree of multicollinearity in this data is acceptable (Alauddin & Nghiem, 2010). To test for normality a Shapiro-Wilk test has been performed. With this test, a check is carried out to determine whether the variables used in this paper are normally distributed. As a result, the hypothesis that the dependent variable, the moderator and the control variables are normally distributed can be rejected, while the independent variable cannot be rejected as normally distributed.
4.5 Additional tests
Many different things have been done to improve the result of these moderating effects. First of all, the extreme liberal boards/conservative boards were used instead of all liberal boards/conservative boards. This means that the standard deviation is once added to the mean to get the most extreme liberal/conservative boards. Also, the xtmixed model and random effects is used instead of fixed effects to increase the number of observations. In this research there has been added a one-year lag, but to try to improve the results, a two- and three- year lag has been added to the independent variable and the control variables. Furthermore, female employees across the organization were also used to improve the results, instead of only focusing on female managers. Lastly, a completely different dataset has been used that focused on the females in top management team. This dataset included the top executives and the C-suite, which refers to the executive-level managers within an organization. The aforementioned things did not change the conclusion that there is no significant result for the moderating effect of liberal and conservative boards.
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5. Conclusion and Discussion
5.1 Conclusion
The aim of this research was to better understand the values and beliefs of the board of directors and how these influence the relationship between having a diversity policy and the number of female managers. This relationship is thus moderated by the political ideology of the board of directors (liberal-conservative continuum). Velte (2016) writes that female managers are responsible for increasing the ESG performance, which ensures a positive contribution to the value of the organization (Fatemi et al., 2017). Therefore, the following research question was prepared:
“When does the political ideology of the board of directors influence the effectiveness of a diversity policy?”
To answer this research question, three hypotheses were created and tested using panel data regression with fixed effects. The first hypothesis: “A diversity policy increases the number of females in management positions” is supported. Thus, results indicate that there is a positive relationship between organizations with a diversity policy and the number of female managers. This means that investing in implementing a diversity policy increases the number of female managers. The second hypothesis: “A liberal board strengthens the positive relationship between a diversity policy and the number of females in management positions” and the third hypothesis: “A conservative board weakness the positive relationship between a diversity policy and the number of females in management positions” are not supported. Thus, the liberal and conservative boards do not moderate the relationship between diversity policy and the number of female managers. Therefore, it can be concluded that no statement can be made as to whether the political ideology of the board of directors influences the effectiveness of a diversity policy. Furthermore, the only control variable that showed a significant result was CEO duality, which seems to have a negative effect on having more female managers. This means that the number of females in management positions is negatively affected by the presence of CEO duality in an organization. As such, the conclusion that can be drawn is that a diversity policy leads to more female managers and that CEO duality ensures that the number of female managers is negatively affected.
5.2 Discussion
5.2.1 Theoretical implications
This paper serves to reintroduce the importance of females in management positions. Furthermore, it contributes to the literature by addressing the question if and how the political ideology of the board of directors affects the relationship between the presence of a diversity policy in the organization and the number of female managers. Having a diversity policy leads to an increase of females in
22
management positions, because this policy is aimed at attracting female managers and helps overcome barriers that females are currently facing (Dickens, 2005). Female managers are currently underrepresented, meaning that organizations are missing out on a lot of benefits that females can offer the organization. The benefits that females bring to the organization are: new perspectives, better decisions, improved ESG performance and a better understanding of consumer behaviour, customer needs and the opportunities to meet these needs (Zhuwao et al., 2019; Lückerath-Rovers, 2011; Ye et al., 2016; Brennan & McCafferty, 1997; Bravo & Reguera-Alvarado, 2019). Therefore, it is necessary to invest in attracting female managers and implement a diversity policy.
The results of this paper suggest that the presence of a diversity policy within an organization would have a positive impact on the number of female managers. This implies that if the objective of an organization is to increase diversity, and therefore to increase the number of female managers, it is advisable to invest in implementing a diversity policy. Interesting is that organizations that also describe a managing diversity policy are more attractive for females than organizations that do not have such managerial initiatives (Williams & Bauer, 1994).
Although previous research has started to examine the relationship between managerial characteristics and gender inequality, little research has been done into how values and beliefs of the board of directors can influence this phenomenon (Carnahan & Greenwood, 2017). This paper begins to close this gap by using the proxy of political ideology (the liberal-conservative continuum).
Therefore, the political ideology of the board of directors as a moderator was researched, reflecting the values and beliefs of the board of directors and demonstrating its influence on the relationship between diversity policy and the number of female managers.
This moderating effect adds to our knowledge that liberal boards do not moderate this relationship.
This result of the current study contrast prior literature. Prior literature clearly shows that the liberal board of directors aim for diversity and that liberals are more motivated to view female job candidates (Bollinger, 2007; Chin et al., 2013). A possible reason for this finding may be that liberal boards want to recruit the best people for the job, regardless their gender (D’Netto & Sohal, 1999). This means that these organizations are more looking for the right match, including the right knowledge and skills, appropriate to the culture and objectives of the organization. Therefore, organizations do not necessarily pay attention to obtaining diversity in management positions (D’Netto & Sohal, 1999). A more recent study by Phillips & Gully (2014) states that liberal boards may not clearly show how diversity relates to their business values and objectives. If this link is not made clear, there is no compelling reason for liberal boards to focus on diversity.
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Also, the moderating effect of conservative boards does not have a significant effect on the relationship between diversity policy and the number of female managers. Previous literature shows that conservative boards are more associated with traditional approaches of agentic leadership and the division of household labour (Matland & King, 2002; Bolzendahl & Meyers, 2004). This suggests that organizations with a more conservative board prefer to maintain the status quo, which means that females stay at home to take care of the children (Jost et al., 2008). A possible explanation of this insignificant finding could be that conservative boards are less tolerant towards other groups, especially groups whose values do not confirm their own values (Farwell & Weiner, 2000; Morgan et al., 2010). Thus, conservative boards can be more tolerant to female managers who support the same values, such as stability, order, respect for authority and business needs. Another explanation could be that conservatives are quite positive towards females, because female managers will make more conservative decisions than their male counterparts (Khan & Vieito, 2013).
Furthermore, the control variable CEO duality has a significant negative impact on the number of female managers in model 4. In this case, an organization recognize the structural power of CEOs by assigning them the dual role of CEO and chairman (Muller-Kahle & Schiehll, 2013). However, status and power are closely related, meaning that individuals of high-status exercise significant power (Magee & Galinsky, 2008). Carter (1993) argues that females need to work twice as hard to be considered half as good as their male counterparts. Thus, an explanation of this significant negative effect can be that the dual role of CEO and chairman does have a negative effect on the number of female managers, because females have to work harder to gain legitimacy and to gain structural power (Hollander, 1992). Therefore, the dual role is less like to be associated with female managers.
5.2.2 Managerial implications
The findings of this paper lead to two important managerial implications. The first managerial implication is that results show that organizations with a diversity policy ensures an increase in the number of females in management positions. The presence of a diversity policy within an organization ensures that females and males have equal opportunities to operate in management positions and that females can overcome the barriers they face if they want to move up in the organization (Dickens, 2005; Linehan & Scullion, 2008). In addition, managers must be aware of the fact that if they are to implement a diversity policy, it must be consistent with the objectives and values of the organization in order to be effective (Phillips & Gully, 2014). Organizations may find it valuable to encourage this, because then more diversity can be created in management positions. This could be beneficial for an organization, because diversity is appreciated by talented employees (Hambrick et al., 2008). Thus, if organizations strive for (more) female managers, it is advisable to implement a diversity policy. Second, the control variable CEO duality has a significant negative effect on the number of females in
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management positions. Given this finding, it is recommended that the organization focuses on avoiding CEO duality within the organization.
5.2.3 Limitations and directions for future research
There are a few limitations that should be discussed in this research. First, this research focused on the S&P 500 firms, which lists only the 500 largest United States publicly traded companies. This does not represent the smaller United States publicly traded companies with a board of directors. To obtain more generalizable data, future research could focus on the board of directors in these smaller companies (Neville, 2011). Adding to that, it is also recommended to look at different geographical areas outside the United States. Fielding et al. (2012) stated that political ideology is viewed differently around the world. Political ideology can even vary from person to person within political groups. These different perspectives in political ideology can cause differences in interaction between the diversity policy and the number of females in management positions. This means that this research is not generalizable to geographic areas other than the United States. Another limitation is that little information was available on the dependent variable, only 537 observations of the 6.530 remained.
Therefore, the sample size may not be representative in this study. For this reason, it is recommended for future research to ensure that the sample size is large enough to make the results more reliable.
Finally, the results of this paper showed that liberal boards did not strengthen the relationship between diversity policy and female managers. Future research is needed to investigate if skills and experiences are more important for liberal boards, rather than having diversity in management positions. Also, the control variables used in this research has given no insight into how female managers (and thus diversity) could be influenced. Therefore, it is recommended to investigate other ways that influence diversity in management positions. Future research could look at the political ideology of the CEO, which might have an influence on female managers, since CEOs have a significant impact on organizational activities (Finkelstein, 1988). Also, future research may also control for on- the-job training, because such training can prepare females to move up in the organization by addressing leadership challenges and competencies needed in management positions (Becker, 1967;
McDougall, 1996). This will contribute to our understanding in how diversity in management can be influenced.
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