The Effect of Opposing Intra-Organizational and Extra-Organizational Political Ideology on Boardroom Gender Diversity
Master Thesis
MSc BA: Change Management Faculty of Economics and Business
University of Groningen
Bob Evers S2328496
Supervisor: Dr. Björn Mitzinneck Co-assessor: Dr. I. Maris-de Bresser
Title
The Effect of Opposing Intra-Organizational and Extra-Organizational Political Ideology on Boardroom Gender Diversity
Abstract
This paper leverages institutional theory to identify multi-level predictors of boardroom gender diversity. Political ideology is selected as the specific logic of inquiry, given its salience in shaping norms and values towards gender diversity and relative underrepresentation in the literature as an antecedent of boardroom female representation. The affiliation-based liberalism of board members is juxtaposed with the conservative logic of the state in which the firm is embedded, providing a frame that allows for different conflict scenarios to be examined. Based on a sample of S&P 500 firms during the years 2000 to 2013, it is found that among boards with a critical mass of conservatives, the positive relationship between boardroom liberalism and gender diversity is negatively moderated by the conservatism of the state. Against expectations, the results also indicate that for firms located in a liberal state, the relationship between board liberalism and gender diversity is stronger when a critical mass of conservatives is present rather than absent. Finally, it is found that firms headquartered in states that score high in political ambiguity strengthen the relationship between board liberalism and boardroom gender diversity. These findings enrich the literature by extending the application of intra-organizational and extra-intra-organizational logics in a boardroom setting. In turn, they inform practice by providing firms, federal regulators and women aspiring directorships with tailored prescriptions in case they seek to reap the benefits associated with increased female representation.
Introduction
Recent studies have shown that women are still strongly underrepresented within the upper echelons of organizations (Grosvold, 2011; Dreher, Lee, & Clerkin, 2011). Depriving women of equal representation in the boardroom has often been scrutinized for its moral impermissibility (Bernardi, Bosco, & Columb, 2009; Carter, Simkins & Simpson, 2003) as well as for its detrimental effect on firm financial performance (Campbell & Minguez-Vera, 2008; Erhardt, Werbel & Schrader, 2003). Despite such good arguments in support of gender diverse boardrooms, progress towards gender diversity is limited and questions arise as to why that is the case (Desai, Chugh, & Brief, 2014; Hillman, Shropshire, & Canella, 2007).
Extant research has exclusively investigated predictors at a singular level of analysis. Hillman, Canella & Harris (2002) focused on the individual level, whereas Grosvold (2011) took a broader perspective by focusing on a cross-national level of analysis instead. Thams, Bendell & Terjesen (2018) settled in the middle, looking at the thus far ignored state-level to identify predictors. In their study they call for a multi-level approach to provide a more integrated picture of what drives boardroom gender diversity.
imposes. These extant findings provide a bedrock for the argument that the liberal affiliation-based logic of the boardroom, faced with opposition by the conservative community-affiliation-based logic of the state wherein the firm is embedded, may have a less positive effect on boardroom gender diversity compared to when such an opposition would be absent (Lee & Lounsbury, 2015; Marquis & Battilana, 2009). By investigating multiple conflict scenarios between the affiliation of board members at the individual-level, and the prevalent political orientation of the geographical community at the state-level, the demand for measuring board gender diversity on multiple theoretical levels is acknowledged.
Using political ideology, however, is not only worthwhile as a means to assess the applicability of clashing intra-organizational and extra-organizational logics, but also represents an under researched predictor in its own right. With some research focusing on different predictors altogether, for example Hillman et al. (2007), who leveraged resource dependence theory to find that firm size and firms with a larger female employee base positively influence the number of women in corporate boards. While the difference is less pronounced when contrasted with with Thams et al. (2018), who focused on gendered policies and its effect on gender diversity rather than the pervasive political ideology of the state more generally.
The investigation of opposing multi-level logics to assess effects on gender diversity, and introducing political ideology as a specific logic of inquiry, introduces a two-fold break from extant literature that has resulted in the following research question:
RQ: Does boardroom gender diversity change when the intra-organizational political
ideology opposes the extra-organizational political ideology?
multiplicity of oppositional logics is extended, now to include political ideology in a boardroom setting. In case of the latter, this study ideally provides firms with insight into why board gender diversity is lacking. Empowered with this insight, firms, federal-regulators and women aspiring boardroom positions may be more capable to decide on a course of action that allows for reaping benefits associated with increased female representation. Federal regulators concerned with increasing diversity may want to elevate regulation regarding board composition to a federal responsibility, so that the playing field is leveled for all women irrespective of the partisanship of their home state. Until then, however, firms willing to retain their diversity level and women aspiring boardroom positions may both want to take into account geographical differences towards gender diversity before making any relocation decisions.
Literature Review
Gender Diversity. Research indicates that despite a growing trend in the number of
women in boards, women are still largely underrepresented compared to their male counterparts (Spencer Stuart Board Index, 2018)1. The stream of research highlighting the extent of the lack of diversity is complemented with research showing its consequences. It has been argued that the lack of women is suboptimal from a moral standpoint because it means that their shared interest as a social group cannot be guaranteed (Carter et al., 2003). Furthermore, when boards consist merely of men, aspiring women in the organization are deprived of a role model they can live up to (Bernardi et al., 2009). These moral repercussions can even expand beyond women themselves, with Chen, Cumming, Hou & Lee (2013) showing that increased female representation may lead firms to commit less fraud, given their greater ethical sensitivity and risk aversity compared to men. Increasing the number of women in the boardroom would not only alleviate these moral strains, however, but may prove to be financially beneficial as well. For instance, increased gender equality potentially betters a firm’s reputation, which in turn may improve employee, customer and investor goodwill (Roberts & Dowling, 2002; Creyer & Ross, 1997). It also exposes the boardroom to a wider array of opinions, which may lead to better strategic decision-making and hence improved financial performance (Triana, Miller & Trzebiatowski., 2014; Erhardt et al., 2003).
Although studies highlighting the consequences of gender inequality are worthwhile in their own right, there has been a call to investigate which antecedents are responsible for creating this lack of gender diversity in the first place. Some early studies have focused on predictors at the individua-level. Hillman et al. (2002) found that women coming from
business backgrounds, holding advanced degrees and join boards at a faster rate compared to male directors. More recently, Hillman et al. (2007) looked at predictors of gender equality at the firm-level. They found that firm size and firms with a larger female employee base positively influence the number of women in corporate boards. A self-proclaimed limitation of their study is that resource dependence theory could only account for environmental dependencies, largely ignoring intra-organizational predictors. Since the number of women ultimately depends on the agents who hire or promote them, the identification of internal predictors should start at understanding what drives these agents to engage in such hiring and promoting behavior, before extra-organizational influences are reintroduced. For this, institutional theory might prove to be a helpful guide.
Institutional theory. From an institutional perspective, different behavior might stem
Political ideology. Due to the multifaceted nature of political views, political ideologies
can be classified on a number of different dimensions (Jost, 2006). However, a liberal to conservative continuum has been the single most useful approximation and parsimonious way of classifying political ideology (Jost, 2006). Starting with the assumptions values and beliefs that make up the conservative logic; there is general consensus that conservatives regard individuals as inherently selfish (Graham et al., 2009). This pessimistic view at the individual-level translates to what Sowell (2007) calls a “constrained vision” towards the potential for progress at the societal-level; there is no merit in social change since bettering society is constrained by the imperfectible humans of which it is composed. This manifests in an emphasis on stability, tradition and respect for authority instead of the active pursuit of progress towards increased equality (Tetlock, Kristel, Elson, Green & Lerner, 2000). Their appreciation for the status quo means that they tend to be supportive of a traditional division of household labor where men work outside the home and women take care of work inside the home (Bolzendahl & Myers, 2004), ultimately leading them to favor hiring and promoting men into the boardroom over women.
they may hire more women as a kind of affirmative action (Kane & Whipkey, 2009). This has resulted in the first hypothesis shown below.
H1: The more liberal the board, the higher the proportion of women in the boardroom
Geographically imposed political ideology. Although the link between the political
ideology of organizational members and gender diversity is an interesting one, it has been investigated in the past, albeit with a focus on general management instead of a boardroom focus like this study (Carnahan & Greenwood, 2018). What has thus far received relatively little attention is that there may be more institutional logics, apart from the ideology board members affiliate with, that play a role in shaping decision making towards gender diversity (Greenwood, Díaz, Li & Lorente, 2010). Carving out which institutional logics coexist simultaneously would likely prove fruitful, since recent research within the institutional logics literature has begun to acknowledge that behavior is not shaped by one institutional logic alone, but rather via a more complex mechanism involving a multitude of institutional logics in competition with one another (Lee & Lounsbury, 2015 Scott, 2005). These institutional logics originate from different societal sectors, such as the market, community and state.
confronted with behavioral prescriptions based on a variety of institutional norms or rules (Dacin, 1997). Firms embedded in the geographical community will try to sustain themselves by adhering to these prescriptions, which ultimately leads isomorphism to occur, where the organization starts to resemble the other organizations and the broader social context of its geographical area (Dacin, 1997; Dimaggio & Powell, 1983).
conservative’s prescriptions. Instead, the liberal board members are forced to engage in so called compromise tactics, meaning that institutional demands are balanced, placated and negotiated until a compromise between both logics is reached (Pache & Santos, 2010; Scott, 2005; Oliver, 1991). This would mean that a board whose affiliation-based ideology is liberal, confronted with a critical mass of conservatives and located in a conservative state, would act not exclusively according to the prescriptions of the liberal logic but find a way to at least partly satisfy the prescriptions of both logics. In other words, a liberal board would be inclined to hire women over men, but located in a conservative state, this inclination would be dampened by the pressures imposed by the critical mass of conservatives. Thus, leading to the following hypothesis:
H2a: Among firms with a critical mass of conservatives, the positive relationship between board liberalism and the proportion of women is negatively moderated by the conservatism of the state
either explicitly rejected or recognized in such a marginal way that they do not have bearing on the actual gender diversity practices of the organization (Pache & Santos, 2010). Given that organizations located in a conservative state face less opposition when a critical mass is absent rather than present, the following is hypothesized:
H2b: The positive effect of board liberalism on the proportion of women is stronger when the state is more conservative and has no critical mass of conservatives compared
to when the state is more conservative and has a critical mass of conservatives
H3: The positive relationship between boardroom liberalism and the proportion of
women will be stronger when the organization is located in a swing state
Taken together, these hypotheses have resulted in the conceptual model shown in figure 1.
Method Sample and Data Structure
The hypotheses are tested in a U.S context, given the salience of gender issues in this setting (Tinsley, Wade, Main & O’Reilly, 2017) and ease of assessing political ideology due to widely available donation data. The sampling frame of this study was based on the Standard & Poor’s 500 during the years 2000 – 2013. The S&P 500 is appropriate for this study, given that large firms are usually in the limelight when it comes to social issues, forcing them to take a conscious stance towards gender diversity (Hillman et al., 2007; DiMaggio & Powell, 1983). Multiple databases were used to arrive at the final sample, including Ideology, Money in Politics and Elections (DIME), BoardEx and compustat. After exclusions due to missing data, and equalizing the sample size for all models, the final dataset contains 661 firms and 6.204 observations.
Measures
Gender Diversity (DV). All hypotheses share gender diversity as the dependent variable, which will be measured by the proportion of board members who are female. Utilizing the proportion of board members who are female, rather than the absolute number of women, is the preferred way of measuring board gender diversity by extant literature as well (Thams et al., 2018; Hillman et al., 2007)
Board Liberalism (IV). This study follows existing literature in assuming that
(Thams et al., 2018; Gupta, Briscoe and Hambrick, 2017). Following these assumptions, the donations to the two major parties are interpreted in conservative-liberal terms, with those donating to democrats assuming liberal stances, and those donating to republicans supporting conservative maxim’s instead (Dunlap & Allen, 1976; Poole & Rosenthal 1984).
To operationalize ideology on the liberal-conservative axis, the DIME was consulted, which provides information on the political contributions made by both individuals as well organizations towards recipients affiliated with the republican and democrat party, including candidates, party committees as well as political action committees. This data is publicly accessible and is enriched with the personal information of donors (e.g. their names, addresses, employment history), which was used to link the DIME data to the board members of the firms included in the sample2. The donation amount in tandem with the number of donations were transformed into the political ideologies reflective of the donor (see Bonica 2016), which results in so-called CFscores ranging from -2 (highly liberal) to +2 (higly conservative).
Per board, these director CFscores were then summed and divided by the total number of serving directors, resulting in the CFscore reflective of the board itself. Given that all hypotheses are framed in terms of liberalism rather than conservativism, the mean CFscores of the board was inversed before it was included in the model. In case of missing values, previous research was followed in replacing the political ideologies of individual board members by 0, indicating a neutral poltical ideology (Christensen, Dhaliwal, Boivie & Graffin, 2015; Chin et al., 2013). In Figure 2 the distribution of political ideology across boards is displayed.
Figure 2. Distribution of Political Ideology Across Boards
State-level Conservatism (Moderater Variable). The Cook Partisan Voting Index will
be used to identify political conservativism at the state-level3, which is consistent with previous research on institutional theory (Hess et al., 2016). The PVI measures the electoral performance of a large number of candidates within a state over time in order to calculate the current partisan advantage (MacWilliams, 2015). The PVI scores range from negative to positive, where negative values indicate a liberal partisan advantage and positive values indicate a conservative partisan advantage (Cook & Wasserman, 2014). The scores in the dataset range from -15 to 22. Swing states, Cook & Wasserman (2014) argue, can be identified when the PVI score ranges between -5 and 5. Based on this assertion, a dummy variable was created to test hypothesis 3, where 0 indicates a state with a partisan advantage and 1 indicates a swing state.
3 The headquarter location was used as the identifier of the state for every firm included in the sample. This was preferred over using the geographically pinning down the consumer base, given that all firms are part of the S&P
0 .2 .4 .6 .8 1 D ens it y -2 -1 0 1 2
Critical Mass of Conservatives (Moderator Variable). A critical mass is almost
uniformly suggested to be present when a group consists of at least three women (Konrad et al., 2008). Extending this to the setting at hand, it can be argued that a critical mass of conservatives is present when a board has at least three conservative members. To facilitate the identification of a critical mass in the dataset, a dummy variable was created, awarding 0 to observations with less than three conservative members and awarding 1 to observations with three or more conservative members.
Control Variables. Extant literature has emphasized that political ideology as well as
gender diversity may differ per industry, which warrants the inclusion of industry-level control variables. To control for the industry-level effect of political ideology, a new variable was computed by calculating the average CFscore of all boards carrying the same two-digit SIC code. Gender diversity, in turn, was controlled for by including the proportion of all-male boards within an industry, again based on the two-digit SIC peer coding system. As to the last industry-level control variable, visibility, it is argued that firms with lower visibility may feel less pressure to conform to societal expectations, such as the call for increased gender diversity (Udayasankar, 2007). In order to control for visibility, the business-to-business orientation was calculated for every firm included in the sample, which is the inverse of the customer orientation measure as used by Lev, Petrovits, & Radhakrishnan (2010).
the proportion of female top management team members as a control variable. Brammer, Millington & Pavelin (2007) found that the expansion of board size, following recent governance recommendations, goes in tandem with increases in gender diversity. Given this relationship, firm board size is included as a control variable as measured by number of board members on the board. Furthermore, to account for the pressure from shareholders to increase gender diversity within the boardroom, the number of shareholder issued proposals for “board diversity” was included in the analysis. Firm performance is the last firm-level control variable that is included in the sample, measured by Tobin’s Q, based on the suggestion that high performing firms are more open to diverse perspectives and may therefore be more likely to increase gender diversity on their boards (Triana et al., 2014)
Data Analysis. Given the longitudinal nature of the dataset, a panel data regression
Results
Table 2. Random Effects Models
Table 1 (see appendix) shows the descriptive statistics as well as the correlations of all measures. Given that multiple correlations exceed an absolute value of 0.3, the potential of multicollinearity threats is explored using variance inflation factors. The VIF of the model including all measures is 1.25 and all individual VIFs are lower than 4, which is indicative of low collinearity threats (Hair et al., 2010).
Testing for hypothesis 1, model 1 shows the baseline effect of liberalism on board-gender diversity. A significant effect for this relationship is found (p < 0.001), thereby providing support for hypothesis 1. The significant control variables include total assets, the proportion of women in TMT, B2B orientation, and the proportion of all male boards in the industry.
Testing for hypothesis 2a and 2b, model 2 shows the three-way interaction effect of board liberalism, state-level conservativism, and a critical mass of republicans on gender diversity. The model indicates a significant effect for the three-way interaction (p < 0.01). Again, the significant control variables include total assets, the proportion of women in TMT, B2B orientation, and the proportion of all male boards in the industry.
difference between the slopes. This means hypothesis 2b is thereby rejected. Note that the figure shows that absence or presence of a critical mass does make a significant difference among firms located in a liberal state (PVI = -15). Surprising is that the presence of a critical mass (CM rep = 1) has a strengthening effect on the positive effect of board liberalism on gender diversity, even though a critical mass was theorized to have a weakening effect instead. This relationship has not been hypothesized, but is worthwhile to mention given that it is the most notable difference that can be derived from the figure.
Figure 3. three-way interaction for board liberalism, state-level conservatism and a critical mass of republicans
Testing for hypothesis 3, the results of the two-way interaction effect of board liberalism and a swing state headquarter location on gender diversity are displayed in model 3. Given that the model displays an insignificant effect (p > 0.05), no support was found for hypothesis 3. Yet again, the significant control variables include total assets, the proportion of women on TMT, B2B orientation, and the proportion of all male boards in the industry.
0 .1 .2 .3 .4 L ine ar P re di ct ion -2 2
BOD CFscore (Inverse)
Robustness tests
Several post-hoc tests were performed in order to determine the robustness of the results. First of all, the random effects model was replaced by a mixed effects model. All models that were initially found to be significant in the random effects model remained significant in the mixed effects model, support for the hypothesis is thereby retained.
Secondly, the range of PVI values for the identification of the swing states was adjusted from [-5 to 5] to [-3 , 3] in order to see if more political ambiguity is needed for swing states to increase the effect of board liberalism on gender diversity. This resulted in a significant effect (p < 0.05); after the PVI had been adjusted, the positive relationship between board liberalism and the proportion of women was positively moderated by state-level ambiguity (model 4). Even though the hypothesis cannot be accepted with the definition of a swing state strictly fixed at [-5 , 5], it is worthwhile to note that in extreme cases of state bipartisanship the positive moderating effect still holds.
Discussion
Consequences rather than antecedents have thus far dominated the literature on boardroom gender diversity (Hillman et al., 2007). Since the study of gender diversity antecedents is still in its infancy, extant research has exclusively focused on singular levels of analysis (Thams et al., 2018). This research responds to a call for the identification of multi-level predictors of gender diversity in the boardroom by leveraging institutional theory, which suggests that behavior is not only shaped by intra-organizational logics but can simultaneously be fueled by prescriptions from opposing extra-organizational logics (Lee & Lounsbury, 2015; Scott, 2005). Political ideology serves as a palpable example of such an opposition of logics, with conservatism traditionally being associated with norms and values towards retaining the status quo, whereas liberalism is associated with norms and values towards greater social equality (Sowell, 2007). These norms and values translate into behavioral prescriptions, which led to the baseline prediction that board member affiliation with liberalism has a positive effect on gender diversity. Support for this prediction was found, indicating that more liberal boards have a greater propensity to consist of a larger number of women.
Board liberalism and state-level ideology. The main purpose of the baseline
relationship between affiliation of board members and gender diversity, however, was to provide a bedrock for oppositional state-level logics to be introduced afterward, thereby enabling the multi-level analysis extant research has called for. It was theorized that the liberal board members may be inclined to select more women as befits the prescriptions of their liberal logic, but when the firm is headquartered in a conservative state, their adherence might be challenged by the demand of the conservative logic to retain the status quo. It was theorized that this is only so, however, when the geographical community is sufficiently represented within the boardroom, which was defined as having a critical mass of at least three conservative board members. This led to the investigation of a three-way interaction between board liberalism, state conservatism and the absence or presence of a critical mass. As predicted, it was found that when a critical mass of conservatives is present, the positive relationship board liberalism on gender diversity is dampened when the state is conservative compared to when the state is liberal. No support was found, however, for the prediction that among firms located in a conservative state, the positive baseline relationship is moderated by the presence or absence of a critical mass of conservatives. Note that one cannot deduct from this finding alone that the relevance of a critical mass should be waived altogether, for the moderating effect of the absence or presence of a conservative critical mass was still observed when the firm is located in a liberal state. This effect was not hypothesized, but a plausible explanation can nonetheless be identified.
of conservatives may lead liberals to shift away from the average opinion rather than towards it, behaving more in accordance with their liberal norms and beliefs as a consequence (Brown, 1974).
on gender diversity, but have not taken into account geographically imposed political ambiguity.
Practical recommendations
The positive baseline effect of board liberalism on gender diversity expands the insight into what drives the selection of women for boardroom positions, which is worthwhile given the wide-array of research highlighting both the moral as well as financial consequences of increased diversity (Erhardt et al, 2003; Bernardi et al., 2009). With only 24% of S&P 500 directors being female, knowing that political ideology might be one of the culprits makes the lack of diversity easier to address (Spencer Stuart Board Index, 2018). The introduction of state-level effects and the subsequent findings yield recommendations for (1) management practice, (2) women aspiring to be selected for directorship and (3) federal policy makers.
political ambiguity due to lack of extra-organizational opposition, and may therefore want to anticipate unwanted extremes in decision-making towards gender diversity.
Turning to the women aspiring directorship, their efforts towards landing a boardroom position might be more rewarded when they focus their attention on liberal firms compared to conservative firms. If already embedded in a conservative leaning firm, however, women might want to make key decision makers aware that the dominant political ideology in the boardroom is impeding them from obtaining directorship themselves. Which, in turn, increases transparency at the very least and drives policy change at the very best. Similar suggestions can be made when the state-level effects are taken into account. Thams et al. (2018) suggested women might want to move to a liberal state to increase their chances of landing boardroom positions, a suggestion that is congruent with the findings of this study.
Suggestions for further research
The findings in this research point to the merit of identifying multi-level predictors towards boardroom gender diversity. A first suggestion is moving beyond the individual-level and state-level to determine the limits of political ideology as a predictor of board-room gender diversity. For instance, by investigating whether the political ideology at the national level has any influence at all, and whether a three-way interaction effect can be established when the national-level is cinched with the ideology dominant at the state-level.
Apart from adjusting the level of analysis, it is also advised to look into different geographical settings. For one, because political ideology is differently structured around the world, therefore warranting investigations that take into regard country specific contingencies (Gordon & Segura, 1997). Furthermore, each country has unique regulatory forces at play, with Europe leading the pack with its prevalence of gender quotas (Wang & Kelan, 2012). These peripheralities of state sector institutions might interact differently with the effect of boardroom political ideology on gender diversity (Grosvold, 2011).
Furthermore, it is also suggested to leverage institutional theory to probe for potentially influential logics beyond political ideology, such as logics pertaining to religion or logics originating from entirely different sectors such as the market (Greenwood et al, 2010). Apart from exploring institutional theory to identify new predictors, other organizational theories might prove to be instrumental as well. Hillman et al. (2007) already provide variety by leveraging resource dependency theory, but this still leaves the opportunity for other theories such as upper echelon theory to be explored in research to come.
Limitations
is unfortunate, given that the unexpected findings of this study signal clearly that a holistic picture is paramount to gain full understanding of what drives board member decision-making.
Conclusion
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