- Gender Diversity in Top Management Teams in Indonesia: How Can It be Explained?- In the Age of “Womenomics”

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Master Thesis

In the Age of “Womenomics”

-

Gender Diversity in Top Management Teams

in Indonesia: How Can It be Explained?-

Olivia Idrus

S1820842

O.Idrus@student.rug.nl

Supervisor I: Dr. H. Stek

Supervisor II: Prof. Dr. L. Karsten

University of Groningen

Faculty of Business and Economics MSc International Business & Management

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ABSTRACT

The main objective of this research is to find out gender diversity and its effect within corporate boards by focusing on top management teams in Indonesian companies. It is done by examining the characteristics of top management team and the company such as size of the board, company’s internationalization and board member’s interlocking directorate, as independent variables with gender diversity, as dependent variable. The datasets composed of 100 Indonesian companies which are taken from the list of 100 Index Kompas. Having investigated 1074 board members, it revealed the domination of men in the board wherein women only accounts for 11%. The religion and cultural aspects in Indonesian environment are believed to be the primary causes of this result. It is concluded that all of the independent variables do not have significant relation with gender diversity in top management teams in Indonesian companies.

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INTRODUCTION

“I see three main points to make the business case for diversity. First, a talent shortage that requires us to seek out and use the full capabilities of all our employees. Second is the need to be like our customers, including the need to understand and communicate with them in terms that reflect their concerns. Third, that diverse teams produce better results”.

Lew Platt, former CEO of Hewlett Packard (Kochan et al, 2003)

In the era of globalization, the international market is becoming one important factor in searching for higher market share and profit for business operations to survive in the competitive environment. Therefore many companies are turning into Multinational Corporation (MNC) for which their scope of operations is not limited within the national boundary. As a consequence of company internationalization, these multinational corporations have access to labor forces from many different countries. This is reflected in the composition of the workforce in the company. The globalization of management therefore has emerged. Consequently, the demand for labor that possesses the needed knowledge and skill as well as contacts in foreign market is increasing (Carpenter et al, 2001).

Moreover, in order to enhance its effectiveness, companies should induce diversity in its top management team. In this context, diversity is defined as “differences that associated with age, physical appearences, culture, job function or experience, ability, ethnicity, personal style, gender, and religion” (Arfken et al, 2004). These differences are categorized into three dimensions by Jehn et al (1999) i.e informational diversity, value diversity and social category diversity. Informational category is described as differences in knowledge, skills and perspectives. When it comes to the differences in team member’s opinion toward tasks, it refers to value diversity. The last category of diversity, social category diversity is associated with differences in terms of gender, age or ethnic background.

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Even so, many scholars also have found how diversity could bring disadvantages such as the increasing cost for coordination and control, and slowing down the decision making process since heterogenity could lead to all kinds of conflict as a result of distrust and hostility (Adams and Ferreira, 2004; Tyson, 2003 ;Amason and Sapienza, 1997). As a consequence it needs additional effort to induce cooperation amongst team members such as additional board meetings and performance incentives (Adams and Ferreira, 2004).

Notwithstanding, the effect of diversity also depends on certain stage that the company encounters. According to Jawahar and McLaughlin (2001), there are four stages in organization life cycle that would have different effect on diversity i.e startup, emerging growth, maturity and decline or transition. When a company is just being established, the growth of the company depends upon financial resources and market share. Thus the unique perspectives of the diverse team members are really crucial in the effort of penetrating the customer needs on products and services. Reaching the second stage when company actively seeking for an expansion, diversity is still needed to come up with creative idea of broaden the market share. On the contrary, when a company is finally well-established, diversity can have a negative effect since the establishment of routines and rules impede the innovative and creative thinking that diverse team bring in. The negative effect has also an impact to the company in the last stage of the organization life cycle. In the decline stage, poor communication, conflict and mistrust are assumed to be the result of visible diversity.

As mentioned before, one of the forms of diversity is gender diversity. As more and more women gain higher education, company is urged to introduce more women into its board. But even though there is a high need for qualified managers, the barriers for women to enter still seem to be strong. These phenomenon that prevented women to rising in a top levels of organization is also referred as the “glass ceiling” (Powell and Butterfield, 1994). The reasons for this phenomenon include ‘cultural sanctions, educational barriers, legal restrictions, corporate obstacles and womens’s disinterest in pursuing a traditional masculine career’ (Adler and Izraeli, 1988).

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2003, Daily et al, 1999). As James Preston, the retired CEO of Avon mentioned, “Because 60% of all purchase of this country (US) are made by women, having women on the board just makes good business sense” (Sweetmen, 1996).

A recent report by ILO (March 2008) shows a growing number of women that gain a decent employment, yet the equality of gender in terms of the access to the labor market and employment’s conditions has not yet been accomplished. Service sectors such as commercial banking, insurance, retailing and finance are industries that are most likely to represent women in their board, whereas industrial sectors such as manufacturing, mining and engineering are still dominated by men (Harrigan, 1981; Singh et al, 2001, Arfken et al, 2004; Bertrand and Hallock, 2001).

Nowadays women account for steadily increasing proportions of labor force growth that consist of over 47% of the workforce in the world. Regardless the improvement of the proportion of women on the workforce, they still remain under utilized. Most of them are employed for junior positions. In corporate boards in USA, UK, Canada, Australia and many European countries, women only account for less than 15 per cent and in some Asian countries only 0,2 per cent (ILO, 2008).

Problem Statement

Globally, there has been a significant growth of women involvement in labor force. Yet they are still over-represented in informal employment and under-represented in management roles (ILO, 2004). Many studies have been conducted in investigating the trend of gender diversity in top management teams. And they seem to reach an agreement that even though there has been a growth in the participation of women in the management level, the ‘glass ceiling’ phenomenon still exists.

According to Singh and Vinnicombe (2004) there are two main explanations concerning this issue: organizational barriers and, behavioral and cultural aspects. The former is related to career development, promotion and incentive that are more favorable for men. The latter is dealing with the issues of “gender stereotyping of leadership, gendered communication styles, management and’fit’, corporate culture, power dynamics, old boys networks and social exclusion, and elements of tokenism”.

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management, on the other hand, still received insufficient attention (see for example Bertrand and Hallock, 2001; Singh et al, 2001). And since women increasingly move into the managerial ranks, it would be worthy to explore these studies of the ‘glass ceiling’ phenomenon. Given that these studies mainly focus on USA and European countries, therefore I am interested to investigate Indonesia, which is still under research. As one of the countries in Asia that has sustained high economic growth rates in the recent years, most of the researchers are only interested in the study of Indonesia’s economy and business. Studies about gender diversity in corporate boards in Indonesia are really limited. Moreover, the distinction of religion and cultural aspect in Indonesia’s environment makes its situation different from other developed countries. As one of the most populous countries, Indonesia is known for its ethnic, language and religion diversity. With an estimated population of more than 230 million people, it is the fourth most populous country in the world. Indonesia’s main islands, Sumatra, Java, Kalimantan (Borneo), Sulawesi (the Celebes), and New Guinea are populated by over 300 different ethnic groups wherein most of the people are Moslems.

Furthermore the management practices and the role of top management teams may show differences between countries because of different cultures and policies. In Spain, for instance, the government has proposed a change regarding an equal opportunity toward women. For those companies that have more than 50 employees, an increase to a minimum of 40% of women’s participation on board is expected in 2013 (Driga, 2006).

Therefore the primary purpose of the topic that I chose is to examine gender diversity and its effect within corporate boards by focusing on top management teams in Indonesia. More specifically, the characteristics of companies and board members such as size of the board, the internationalization of the company as well as the team member’s interlocking directorate will be explained. The explanation regarding the specific condition in Indonesia that might be the forcing factor of the existence of current gender diversity situation in Indonesia will also be discussed.

Hence, the research questions are formulated as follows:

1. To what extent do Indonesia’s companies diversify in regard of gender in their top management teams?

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Structure of the Thesis

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LITERATURE REVIEW

“Forget China, India and the internet. Economic growth is driven by women”.

The Economist, April 12, 2006

The advantages of having women in boards have been acknowledged by many scholars. Catalyst, a well-known organization which often conducted research regarding women in business, has been assessing the relation between gender diversity and company’s financial performance with a sample of 353 from Fortune 500 companies for the period 1996 to 2000. By dividing these companies into two quartiles, top and bottom quartile, it reveals that companies with more women on their board, financially outperformed those companies with less women on board. The result indicates an increase of Return on Equity (ROE) and Total Return to Shareholders (TRS) by 35% and 34% respectively. Another similar result was discovered by Krishnan (2008), Singh et al (2001) and Francoeur et al (2008). They found that the proportion of women on boards generate a positive and significant return.

According to Catalyst (2004) there is an average increase of 0,5% of new board seats for women per year. Aude Zieseniss de Thuin in the Economist (2006) states that when the economy is practiced by women, the age of “Womenomics” has begun. Many countries have acknowledged the importance of women in the management by requiring companies with a gender quota for female directors. In Finland and Norway, public companies are forced by law to have gender-balanced boards of 40% for female (Adams and Ferreira, 2008). Sweden also sets a requirement a minimum of 25% for female directors in board seats (ibid). These actions are also based on the increased attention for accountability and transparency of firms by issuing corporate governance regulations concerning the board structure.

Moreover, there has been a significant growth in the average number of women’s representation on boards in European countries, from 5% in 2001 to 8,4% in 2007 (Campbell and Minguez-Vera, 2008). Nevertheless, this number is still low compared to US that achieves 14,6%. The highest number of women directors however can be found in Sweden that reach 21% followed by UK with 15% (ibid, 2008).

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Background Information: Indonesia

Labor Market in Indonesia

Within the era of globalization, Indonesia’s labor market has been shifted from the traditional sector of agriculture to a industrial sector which has an impact on the increasing number of labor force from 95,7 million in 2000 to 106,3 million in 2006(Hasoloan). This trend is followed by a growing number of women that participates in the labor force that reaches 38,61 million (36,33%) in 2006 (Hasoloan) with a rate of increase to be predicted as 3,9% per year (U.S. Library of Congress). The improvement of the educational system with government’s nine-year compulsory education system as well as the increasing economic necessity have been the main reasons of the increasing women’s labor force participation rate (Wright and Tellei, 1993).

The pattern of behavior in terms of type of employment however is really different between man and woman. Men are more likely to work in the formal sector and women are still over-represented in low-paid jobs (Buchori and Cameron). The difference can also be seen in the unequal treatment regarding wages. Women receive 20% less wages than men with similar job (ibid). The existence of women in the managerial position is also very limited which accounts for only 1,2% (Mawardi, 2003). According to the Indonesian Business Women Association, most women that own companies are those from small enterprises (85%) followed by medium enterprises (12%) and merely 3% holding big companies (Apec, 2004).

The Influence of Culture and Religion regarding Gender Issue in Indonesia

Indonesia is a country characterized by great diversity. As a country that has multiple communities with local cultures, the diversity is reflected in its national motto of Bhinneka Tunggal Ika, taken from Latin word means unity in diversity (Wright and Tellei, 1993). And since the Javanese is the most dominant ethnic group in Indonesia and 90% of the population is Moslems therefore Indonesia’s legal system regarding gender issue is a fusion between Islam religion and Javanese culture (Bahramitash, 2002).

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perspective that women should only choose a career path which will not interfere with their primary roles as wives and mother (Utomo, 2005). Women should place their family as their first priority.

These defined roles are also reinforced by government by creating an organization so-called “PKK” (The Applied Family Welfare Programs) in 1980s which outline five roles of women, i.e as a wife, housekeeper, child-bearer, child-rearer, and citizen, to ensure that the ideal type of women had is maintained (Dzuhayatin; Wright and Tellei, 1993). The ideal image of women imposed by the community and the state thus has resulted in gender discrimination in the educational sector. Even though the equal access of education has been granted to man and woman, but when the financial constraints arises the priority will be given to man. This decision is based on the assumption that man will be the master of the family and woman will “ultimately go to the kitchen” (Dzuhayatin).

Furthermore, in view of cultural aspects using the GLOBE (Global Leadership and Organizational Behavior Effectiveness) project measurement of national culture, the cultural characteristics of Indonesia are considered to have high collectivist, low uncertainty avoidance and high power distance(Mawardi, 2003). As opposed to individualism where the ties between individuals are loose, the high collectivist values can be seen from the patron-client strong relationship. Loyalty is one of the most important aspects in the society and everyone is taking care of each other. The low uncertainty avoidance means that the society has not ready in accepting changes which is apparent in the society where the tradition is still strongly maintained (Wright and Tellei, 1993). Moreover, the index of high power distance indicates a high level of inequality of power and wealth within the society. It is reflected in the society which is highly stratified and hierarchical with segregation of social status and class that traditionally based on hereditary nobility (ibid). Thus those who make it in the high position are mostly from the privileged, wealthy group. The description of cultural dimensions can be seen in table 1.

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Table 1. Description of GLOBE Cultural Dimensions GLOBE Cultural Dimensions

In-Group Collectivism Degree to which a culture’s people (should) take pride in and (should) feel loyalty toward their families, organizations, and employers

Uncertainty Avoidance Degree to which a culture’s people (should) seek orderliness, consistency, and structure

Power Distance Degree to which a culture’s people are (should be) separated by power, authority, and prestige

Source: Javidan et al, 2005

Governmental Policies in Relation to the Status of Women

Politically, the government has ratified policies that uphold principles of gender equality and the empowerment of women. The basic law regarding this issue is “Pancasila”, the 1945 Constitution and State philosophy. It is derived from Sanskrit word “Panca” meaning five and “Sila” meaning principles. The five principles are; believe in one supreme god, fair and civilized humanity, unity of Indonesia, “deliberative” democracy and social justice (Wikipedia). These principles guarantee equal rights of all citizens in the fields of education, employment, law, health and also political participation.

Another policy that supports the equal right of women is stipulated in “GBHN”, the Broad Guidelines of State Policy, i.e:

“…raising the status and role of women in the state and national life through national policies executed by institutions that are capable of realizing gender equality and justice”.

“…raising the quality of the role and independence of women’s organizations by consistently maintaining the values of unity and integrity as well as the historical value of women’s struggle in terms of the empowerment of women, the well-being of the family and society”.

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Theory and Hypotheses

The Size of the Board of the Company

There is a tendency that the larger the company the more likely it is to have a larger board (Conyon and Mallin, 1997). Based on the resource dependency perspective, it is believed that larger boards can increase the capability of the company in coping with the complexity of the environment (Pfeffer and Salancik, 1978). By having a large board there are more possibilities for a company to receive broader talent that can bring their skill and knowledge to the table in order to reach competitive advantages. As it is widely cited by many authors that the variety of input from different expertise and background may enhance strategic decision (Arfken et al, 2004; Adams and Ferreira, 2004) thus many companies nowadays enlarge their scope in searching for qualified directors from the traditional “think manager-think male” perspective toward women (Schein, 2001; Kramer et al, 2006).

Having a larger board is particularly relevant for large and diversified companies (Bathula, 2008). Given that those companies operating in various market segments, they require more talents and skills to add value to the company as they are tapping into an increasingly diverse consumer base. By increasing the board size, the company is also extending its links to the external environment to gain valuable resources. The outside links and networks that company obtain to other external organization is crucially important in order to gain information, expertise and legitimacy for the development of the company (ibid, 2008).

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Another possible reason for adding women in corporate boards is the distinctive style of management that women exhibit. There are three key roles that member of boards possess regarding their appointment to the board. These include their involvement in defining and implementing corporate strategy, controlling the management of the company, and linking the company to its external environment (Stiles and Taylor, 2001; Bathula, 2008). The feminine side of women employs an interactive style that focuses on consensus building as well as sharing of information that facilitates teamwork and innovation (Heinfeldt, 2005). As opposed to men’s hierarchical management style that tends to use a command and control approach, women unique managerial style is believed to stimulate more creativity, open communication and motivation (Heinfeldt, 2005; Kramer et al, 2006). This effect of management style between men and women however also depends on company’s strategy (Ginsberg, 1994). Women’s management style that foster collaboration and creativity is believed to be implemented effectively in a company that is pursuing an innovation strategy (ibid, 1994).

Moreover, as mentioned earlier, by including women on the board will not only it enhance decision making and innovation but also as Burke (1997) claims can give a number of benefits both inside and outside organization. The inside organization advantages include being a role model for women, the development of an organization culture that is more women-friendly as well as being a career guidance for other higher-performing women. Moreover, in outside organization, the presence of women on board may become “an employer of choice for women, a service-provider of choice for client and an investment of choice for potential and current shareholders”.

The Indonesia’s case

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As part of government’s education programme with its nine-year compulsory education programme, more and more Indonesian women have access to better education (Wright and Tellei, 1993). This also means that the labor market will be stretched in order of getting a broader pool of human capital as valuable resources. In this regard, representation of woman to the board will be urged to meet this call. This would eventually give them an opportunity to be recognised in the workplace. However, discrimination against women at work still remains. As management staff in Jakarta’s company said, “Much of the criticism of women in the workplace is personal, based on how they look or dress, not about their competency for their job. If they do make it to the top, they are often dismissed as riding their family’s coattails to the top or sleeping their way there”. (Diani and Emond, 2003).

Inline with the assumption that larger companies tend to also has larger boards since it has wider access to the external environment in an effort of taking advantages of the highly educated human resources capital therefore, the first hypothesis is:

Hypothesis 1: The size of the board is positively related with the gender diversity of the Top Management Team in Indonesian companies.

The Internationalization of the Company

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Furthermore, as companies are getting larger, they opt for domestic or overseas listing to attract foreign investors. By listing in the capital markets, companies are forced to adapted themselves to international standards in the aspects of corporate governance, auditing and accounting and business conduct (Hong and Sun, 2004). And since women have been perceived as individuals who could improve the independency of the board, the recruitment of women to the board therefore has been one of the solutions in dealing with this issue.

Subsequently, by having the company’s stock listed in the capital market, especially in overseas listing, it will attract a larger pool of resources to fill in the position in dealing with the environmental complexity and uncertainty. This eventually would lead to the internationalization of the board membership. As Staples (2007) says, “Having a multinational board is becoming the mark of the truly global corporation - or at least corporations with global aspirations”. By welcoming people from different nationalities to the board, it therefore can be assumed that company would also has a positive perspective toward gender diversity. Hence it is expected that diversity will breed diversity. This is confirmed by a recent study by Staples (2008) on 489 companies that were retrieved from the data of 6.628 directors of the Fortune Global 500 where women constitute 10,4% of these boards. It reveals that larger companies and companies that are composed of more multinational boards are those companies that tend to have more women on their boards.

Larger companies are also subjected to greater public and media attention. Following the pressure from the media and shareholders to improve corporate governance (Kramer et al, 2006) as well as requirement by the government agencies that has preferences for diversity (Adams and Ferreira, 2004), various codes of conduct and best practices have been introduced. As a consequence, this action has brought reforms in board structure and composition (Stiles and Taylor, 2001). And gender diversity is part of good corporate governance since it contributes in monitoring and controlling managers which in turn will increases board independence (Luis-Carincer et al, 2008). As a result, more and more companies start to appoint women directors to gain their public image. By including women in their board, it is expected that company will earn legitimacy as they have signaling their commitment toward diversity (Bilimoria, 2006).

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composed by qualified individuals who reflect diversity of experience, gender, race and age” (Nordon, 2006). Beside that, the diversity’s reputation that the company gains would send positive image to other prospective investors which eventually will influence company’s growth.

The economic growth and the population of Indonesia with almost 240 million people have attracted many big companies from overseas to invest their capital in Indonesia to do business. Most of these foreign investors are from the UK, Japan and Singapore (Alexander, 2009). Therefore many of big companies that operate in Indonesia are either subsidiaries of a well-established foreign company such as Unilever, or Indonesia’s own company that has gain recognition outside Indonesia such as Astra.

Furthermore, foreign ownership in Indonesia is restricted to only 49% holding in the banking sector and up to 85% in the brokerage sector, with the exception of industry that defined as “strategic” such as mineral companies. By the end of 1997, foreign investors gained approximately 25% of Indonesia’s company shares in which concentrated in the most-established blue-chips companies in Indonesia (Wells, 1997).

These strategies of internationalization by listing companies stocks in the capital market, enable companies to gain more recognition thus expand wider market as well as wider resources. As women are considered to have distinctive experience and perspective, thus more and more women will be given the opportunity to occupy the position. However there is much work to be done to have equal opportunities for women in Indonesia, as is stated by staff in one Jakarta big company, “For women, good is never enough as they have to be excellent to be recognized in the workplace”. (Diani and Emond, 2003).

Considering all of the advantages of having women who affect the company’s future prospects, it would be reasonable to assume that companies will be welcoming women to its board. Therefore based on the aforementioned analysis, the following hypotheses are formulated:

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Hypothesis 2b: The presence of foreign members on the board of the company is positively related to the gender diversity of Top Management Teams in Indonesian companies.

The Network of Interlocking Directorate of the Team Member of the TMT

Referring to the obstacles that hinder women’s advancement in the workplace, Kotiranta et al (2007) distinguish three concepts related to those issues. They are glass door, glass ceiling and glass wall. Women discrimination start with the recruitment stage: even with similar qualification, women will still less likely be invited for an interview than men. Since work roles have been defined by gender which is designed by men, this leads to stereotyping and discrimination. This obstacle has prevented women to be hired for a job in an organization because their gender is defined as the glass door (ibid, 2007).

Furthermore, as briefly explained before, glass ceiling is the obstacle that impedes women in moving up to a certain hierarchical level in an organization. Women are seen as lacking the ambition, experience and commitment that hinder them to be promoted (Singh and Vinnicombe, 2004). This view that women are lacking necessary qualities makes women have less tenure in the company which consequently affects their opportunities for the advancement in the upper level of management (Arfken et al, 2004). Singh and Vinnicome (2004) use the social identity theory to explain why in appointing a candidate for a new directors position men still draw men with who they have more similarity. This perception could also be viewed as sex role stereotyping as men still see success as a result of masculine behaviour (Emerald Insight, 2006).

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A lack of networks is one of the main reasons why women still struggle in reaching the top position in the organization. Since women are only were given jobs with lower visibility, this is decreasing their chances of making crucial social contacts (Rosen et al, 1981). In contrast with men who with their “old boys network” really are served in navigating the external labour market (Brett and Stroh, 1999). Networking therefore is really crucial whether in getting a possibility of getting a job or moving up to a higher level in the organization.

All of the aforementioned obstacles confirm the fact that men are still dominant in the workforce which can be seen from the hiring, retention as well as promotion processes. Given the fact that men will be more likely hired for a job than women and since similarity breeds trust therefore fewer opportunities will be given to women regarding the recruitment. This also happens inline in the promotion process for a higher level position toward women since most of the supervisors are men who would eventually have higher regard for whom they have more similarity. Hence, the domination of men with their “old boys network” will assist their way to move up to the upper level. This networking eventually also will open up their chances in gaining recognition to serving on another board, which will lead to the emergence of an interlocking directorate.

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“Finding executive women who occupy high-level management positions in businesses in Jakarta (Indonesia) do not appear to be an easy task. It seems that most women in management hold dual functions: as owner/founder and manager of the enterprise. Even if there are some professional managers, they usually hold less visible positions such as office administrator” (Sihombing, 1984). This quote confirms the fact that women are still battling in gaining a high position in Indonesia.

As explained above, cultural attitudes, gender stereotyping as well as religious influence are the primary obstacles for women to upward mobility in management position in Indonesia. The fact that women are considered to be fully responsible in the management of the household and child-rearing makes it hard for them to meet their professional obligations in pursuing their career. Thus women are mostly work in less demanding jobs which in turn would make them invisible either in gaining a promotion or serving in another board. This could be seen from the percentage of women in management position in Indonesia that only reaches 0,035% in 1989 (World Executive Digest, 1990).

Hence as company favours men over women especially in the promotion process and even if it would choose women, it has more preference for well-known women director, which is really limited as the opportunities given is less to women then I could suggest the following hypothesis:

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METHODOLOGY

Data Collection and Sources

The aim of this thesis is to find out the gender diversity and its relationship in top management team in Indonesian corporations. In order to analyze this, a deductive research method would be employed as the methodological approach. This approach involves the development of a conceptual and theoretical structure prior to its testing through empirical observation (Gill and Johnson, 2002).

Considering the time constraint in the process of writing this thesis, one of the main considerations in obtaining the required data is the accessibility of data in which it has to be relatively easy to be obtained. Therefore, to test the hypotheses, the sample that is selected composed of 100 companies in Indonesia that are taken from the list of 100 Index Kompas1 with the most recent list published in August 2007. All of these companies are listed in Indonesian Stock Exchange and considered as Blue Chip companies. Being a Blue Chip company in Indonesia, it implies that these companies are considered to be the most well-established and recognized companies in the country which have stocks with high liquidity and high value of market capitalization. Therefore it has more potential for gender diversity within their boards. Another crucial reason is that these companies are obligated to issue their companies firm-specific information to the public, which is really important in the data collection process.

Consequently, the data are based on secondary data that has been gathered from the company’s official website as well as data from the Indonesia Stock Exchange website under the section of emiten to get the companies information regarding the corporate team profile, foreign ownership of the company and year of listed in the capital market. The company’s data that has been retrieved from its official website are the composition of the board including name, gender, number of the member and foreign board member, the type of industry the company engages in, the company’s total assets, the listing year in the stock

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Stock Criteria for The Index Kompas 100

Have been recorded at the Jakarta Stock Exchange at least 3 months

Selected based on the transaction value of 150 in the Regular Market

Of 150 selected stocks, the 60 stocks with the largest transaction value will be automatically entered in the calculation of the index A-100.

To get the 100 stocks 40 stocks selected using the criteria of the day regular transactions in the market, the frequency of transactions in the regular market, and market capitalization.

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exchange, the number of employee and company’s foreign shareholder. Most of the information could be found in the company’s 2008 Annual Report. In case of missing data, Google Finance, Zoom Information and Business Week website were consulted as additional sources. Regarding the gender of the board members when the information could not be found on online sources, inferences would be made from their names as it is relatively easy to distinguish male or female from their Indonesian’s given name.

For each company, the datasets that have been gathered from the boards are the data of the Board of Commissioners and Board of Directors. Since the structure of top management team in Indonesia is based on the two-tier system therefore both of the data of Board of Commissioner and Board of Director will be examined. The final data consists of 1074 board members in which 557 of them are Director and the remaining 517 serve as Commissioner.

Variables

This study adopts a quantitative research based on a theoretical model to examine the relationships between board members or company characteristics and gender diversity of companies in Indonesia.

For the analysis of the hypotheses, 9 (nine) variables were used which are operationalized as follows:

Dependent variable:

In this case the dependent variable Y will be ‘gender diversity’. The value needed to calculate this variable is the number of women on board and divided by the size of the board. The variable of ‘percentage of women on board’ will represent the degree of company’s gender diversity.

Independent variables:

The X variable that will be used for independent variables are:

Size of board is measured by total number of team member on board.

Company’s Internationalization.

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measurement of company’s internationalization is operationalized by looking at the number of the company’s foreign shareholder and foreign board member (e.g Van Veen and Marsman, 2008; Chen, 2008, Staples, 2007).

Team member’s network interlocks is measured as the total number of member of the

team that has an affiliation with other companies.

Control variable:

Company’s industry

As it has been investigated by many researchers, the representation of women on board also depends on the industries that the company engages in (Arfken et al, 2004; Singh et al, 2001; Catalyst, 2004). Traditional “male-oriented” industries such as manufacturing and engineering are still dominated by men compared with softer-side companies like retailing and services (Arfken et al, 2004). Therefore in analyzing the hypothesis, the distinction of the company’s industry is used as control variable. This variable is constructed as a dummy variable, in which the value of 1 means the company engages in softer-side industry, such as media, retailing and services and 0 if involves in more “harder” industry such as manufacturing and engineering.

Size of the company

The larger the company, the higher the changes it would have more women on its board as it could be assumed that larger company gain more publicity thus could draw larger pool of resources (Ruigrok et al, 2006). In operationalising this variable, the number of employees and total assets of the company were computed to represent the size of the company (see for example, Van Veen and Marsman., 2008; Chen., 2008).

Listing age

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Method

This research aims to find out whether there is a relationship between the characteristics of top management team and the company by looking at the size of the board, company’s internationalization and board member’s interlocking directorate, as independent variable, with gender diversity, the dependent variable. Therefore, after the collection of the data, the reliability of the data will be statistically tested using SPSS statistical programme. In order to find the significance of relationship between those variables, the method of correlation and regression could be employed. However, since a correlation method only measures the strength and the direction of relationships, the regression analysis is best suited to test the hypotheses as it could predict the significance measurement of the dependent variable from the independent variables (Field, 2005). And given that the level of gender diversity will be predicted from several predictor variables, hence the multiple regression analysis will be used instead of simple regression (ibid, 2005).

More specifically, first, all variables will be described regarding their frequencies to get an overview of the analysed data. Then the multiple regression analysis would be used to test the relation between dependent and independent variable. The analysis will be presented with the summary of the model which provides the value of R and R square for the model. These values show how much of the variability in gender diversity can be explained by several predictor variables. Next, an analysis of variance (ANOVA) would be used to shows whether the model significantly fit the overall data, which could be seen in the F-ratio. Lastly, the significant contribution of the several predictor variables as well as the positive-negative relationship between gender diversity and each predictor would be presented in the Coefficients table in the value of Sig and Beta (ibid, 2005).

Referring to the earlier explanation, the following model is derived:

Yi = (b0 + δ1D1+ b 1X1+ b 2X2+ b 2X2+ b 3X3+ b4X4+ b5X5+ b6X6+ b7X7) + εi Where: Yi = Gender Diversity δ_{1D1 = Company’s Industry} b 1X1= Size of boards b 2X2 = Foreign Shareholder b 3X3 = Foreign Board Member

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b 5X5 = Total Assets

b 6X6 = Number of Employees b 7X7 = Listing Age

The conceptual model

D I G V E E N R D S E I R T Y Team Member’s Network Interlocks

Size of the Boards

+

- + Company’s Internationalization

- Foreign Shareholder - Foreign Board Member

Company’s Industry

Size of the Company - Total Assets

- Number of employee

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RESULTS

Descriptive Result

Size of Boards

In this study, taken Indonesia as an investigated country which is based on two-tier system, the classification of its top management team is comprised of Board of Commissioner and Board of Director. The Board of Commissioners consists of President or Independent Commissioner and Commissioner whilst the Board of Director includes President Director, Vice President Director and Director.

From the sample of 100 companies, it retrieves a total of 1074 board members, of which 557 members (52%) are positioned as Board of Director and 517 members (48%) as Board of Commissioner. Furthermore the result of the data also reveals that the average number of member of the board in Indonesia is 11 with the minimum member of the board could approach as low as 4 members and the maximum number that could reach up to 19 members depends on company’s size as well as the expansion of the company’s operation.

Focusing on the distribution of these board members by gender differences, it could be seen the superiority of men over women in which men make up 89% of the total number of board member compare to women with a mere of 11%. From this small number of women on board, more than half of them (60%) are employed as director. These data can be found in table 2.

Table 2. Distribution of women on board

Director Commissioner Total

Board member Number 557 517 1074

% 52 48 100

Women on Board Number 70 47 117

% 13 9 11

Company’s Internationalization

Foreign Shareholders

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that enlisted as a board member (69) are working in the company which has foreign shareholders. However, this number only represents 10% out of 670 member of board. Meanwhile the same case could also be seen in companies that do not have any foreign shareholder, in which the representation of men dominate the board with 88%.

Table 4. Distribution of women regarding the company’s foreign shareholder Company with foreign shareholder Company without foreign shareholder Total Number of Company 63 37 100

% 10 12 11

Foreign Board Member

The study also shows the domination of men over women when distinguishing the company based on the nationality of its board member. By classifying the data into 2 (two) groups, companies that only consist of member with Indonesian nationality and those companies that have member from other nationality than Indonesian, it reveals that companies that have nationality diversity on their board are those companies that have more women on their board which account for 63 members out of 117 members. And again, the data unveil the supremacy of men over women when looking at the data of those companies that only consist of member with Indonesian nationality. Out of 464 board members in this group, only 54 of them are women (12%). This information is presented in table 5.

Table 5. Distribution of women regarding the company’s foreign board member Company with foreign

board member

Company without foreign board member

Total

Number of Company 49 51 100

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Team Member’s Network Interlocks

As mentioned earlier, the network interlock occurs when a person serves in more than one board. From the data of 100 companies, the interlock directorates only represented by 17% out of the total of 1074 board member. From this number, there are 4 members that affiliated with 4 companies, 7 members in 3 companies and the rest serves in 2 companies. The network interlock of these board members in Indonesia’s company could be explained by the fact that some of these companies are part of an affiliation of other companies such as Bakrie and Brothers with Bakrie Telecom, Bakrieland Development and Bakrie Sumatra Plantation. The same case could be seen in Astra International that affiliated with Astra Agro Lestari and Astra Graphia.

And as predicted, the number of women that involves in interlock directorate is really low (see table 6). With the total of 16 people, it means women only account for a mere of 9%.

Table 6. Distributions of women regarding the board member’s network interlock

Men Women Total

Board member Number 957 117 1074

% 89 11 100

Interlocks Number 168 16 184

% 91 9 100

Company’s Industry

By dividing the companies between those that are operating in the traditional “male-oriented” industries such as engineering and manufacturing and those in softer-side sector companies like media, finance and service (Arfken et al, 2004), it is revealed that 53% of sample companies are falling into the first category.

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Table 7. Distributions of women regarding the company’s industry Director Commissioner Total Traditional “male-oriented” industries

% 49 51 100

Softer-side companies

% 71 29 100

Other Information of Sample Companies

Looking at the dataset of sample companies concerning the year when the company listed their stock in the capital market, it uncover that the variation is quite large. It ranges from 2 to 26 years with the average age of 12 years. The data of company’s number of employees even showed a wider variety. With one company, an investment company Bhakti Investama, has 48 employees, while another company, Astra International, a trading company that engages in six business lines with an umbrella of Astra Group has 73.000 employees. The average number of employees in the sample companies is around 7.175 employees. The same case is also shown in the data of company’s total assets. With the mean value of US$ 2.014.907.963, the total asset lies between US$ 198.000 and US$35.843.867.800 in which the latter belong to Bank Mandiri.

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Table 8. Descriptive Statistics of the Dependent and Independent Variables

N Minimum Maximum Mean Std. Deviation

Size of the Board 100 4.00 19.00 10.7400 3.70536

Foreign Shares 100 0 85 19.13 22.997

Foreign Members 100 .00 9.00 1.5000 2.29844

Interlocks 100 .00 13.00 1.8400 2.80951

Sector 100 0 1 .47 .502

Age of Listed Company 100 2 26 12.41 6.257

Company's Total Assets 100 1,980 4.E8 20,149,079.63 51,962,802.634

Number of Employees 100 48 73,000 7,175.75 12,275.905

Gender Diversity 100 .00 60.00 11.0054 12.20220

Valid N (listwise) 100

Testing Hypotheses

As explained before, in order to test the sets of hypotheses the multiple regression analysis was employed. The result of the regression analysis is shown in table 9, 10 and 11.

Table 9. Summary of Regression Model

Model R R Square Adjusted R Square Std. Error of the Estimate

1 .199a .040 -.045 12.47326

a. Predictors: (Constant), Number of Employees, Foreign Shares, Sector, Interlocks, Age of Listed Company, Foreign Members, Company's Total Assets, Size of the Board

Table 10. ANOVA

Model Sum of Squares Df Mean Square F Sig.

Regression 582.478 8 72.810 .468 .876a

Residual 14157.987 91 155.582

1

Total 14740.465 99

a. Predictors: (Constant), Number of Employees, Foreign Shares, Sector, Interlocks, Age of Listed Company, Foreign Members, Company's Total Assets, Size of the Board

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Table 11. Coefficient of Variables

Unstandardized Coefficients

Standardized Coefficients

Model _B _{Std. Error} _Beta T Sig.

(Constant) 8.234 5.235 1.573 .119

Size of the Board .336 .507 .102 .662 .510

Foreign Shares .056 .059 .105 .946 .346

Foreign Members -.561 .720 -.106 -.780 .438

Interlocks .022 .520 .005 .043 .966

Sector 1.655 2.734 .068 .606 .546

Age of Listed Company -.065 .221 -.033 -.293 .770

Company's Total Assets 1.033E-8 .000 .044 .330 .742

1

Number of Employees .000 .000 -.179 -1.328 .187

a. Dependent Variable: Gender Diversity

By including 4 variables as control variables in predicting the gender diversity from 4 independent variables, the value of 95% is used as confidence coefficient (p<.05). Furthermore, the result reveals that the F-test is not statistically significant (.876), which means that the model is not significantly fitting the data. The R-squared that derived from the analysis is quite low (.040). This result indicates that only 4% of the proportion of “women per board” variance is accounted for by the model. This insignificance result can be explained by the author’s option in choosing those companies that indeed are blue-chips companies in Indonesia. Since women not only serve in big companies, in fact only 3% of them, whereas the biggest percentage of them are working in a relatively smaller companies in terms of employment and revenue (Driga, 2006) i.e 12% and 85% in medium and small enterprise respectively (Apec, 2004). Therefore the sample of the companies should be equally distributed within those 3 categories of companies.

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Hypothesis 2a predicted that the existence of company’s foreign ownership is positively related to gender diversity. But although the regression coefficient also shows a positive direction (Beta .105), the significance level is high (.346). This result shows that the proposition that infer the number of women is higher in the company that has foreign shareholders, is rejected.

The relation between the existence of nationality diversity of board member and gender diversity that assumed to have a positive relation is portrayed in hypothesis 2b. However, the result of the sign of the variable’s coefficient is pointing in the opposite direction (Beta -.106). It can be argued that the contradicting outcome appears to be the result of the dominance of men within board. Since most of the board members are men which have more preference for men as well therefore the presence of women into the board is restricted. Nevertheless, this outcome is again rejected since the significance level is higher than .05 (Sig .438). It means that the assumption that a company with a higher level of nationality diversity has more women on its boards is not supported.

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DISCUSSION

“The rule of thumb is still:

the higher up an organization’s hierarchy, the fewer the women”

International Labor Organization (ILO), 2004

This research tried to explore the effect of company’s and corporate board’s characteristics with regards of board’s size, company’s internationalization and board’s member network interlock with gender diversity within Indonesia context. In this respect, the question of “To what extent have Indonesia’s companies diversified in regard of gender in their top management team?” has arisen. In an attempt to answer this first question, the dataset containing 1074 board members that was derived from 100 big companies in Indonesia that are listed in 100 Index Kompas have been gathered. It reveals that gender diversity is not very high. With the total number of women that reach 117, it means women only accounts for only 11%. This number however is quite surprising, considering the characteristic of culture and religion in Indonesia that still has bias perception against women that served in the management position.

Referring back to Campbell and Minguez-Vera’s research (2008) on the gender diversity in the European countries, the result of this research in Indonesian companies is actually quite high, taking into account that the average number of women on board in European countries in 2007 is only reach 8,4%. It even surpassed the Netherlands, France and Switzerland with the result of 9%, 7,5% and 7,2% respectively, wherein Sweden still can be claimed as country that has the most women that served in the high position with the amount that reach 21,3% (ibid, 2008).

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Having disclosed the composition of 100 Indonesia’s blue-chip companies boards with regard to gender differences, the answer to the second question, “How can the gender diversity of top management team’s of Indonesia’s companies be explained?” is given. Since the author could hardly find any earlier research about gender diversity that covers Indonesia, the development of theory in this study mainly referred to previous studies which focus on developed countries such as U.S and European countries. Company and board’s characteristics that assumed to have influence with gender diversity are included. These include size of the board, company’s internationalization and board member’s interlocking directorate. Based on these characteristics, the hypotheses were constructed to find out if there is a relationship with the number of women in the corporate boards of 100 blue-chips companies in Indonesia. Furthermore, when focusing to the specific condition in Indonesia’s environment, the issue of culture and religion which lead to the gender stereotyping is believed to be the main factor of gender diversity in Indonesia.

Moreover, based upon the datasets of 1074 board members within 100 companies, the regression analysis was conducted. It suggests that all the characteristics of company and board that have been investigated failed to explain the significant relationship with gender diversity. The result of the sign of the coefficient from the first two hypotheses is consistent with expectation, wherein as the size of the board and the number of foreign shareholders are getting larger, the number of women on boards is also increasing. The last two hypotheses however show a contradicting result with the expectation. As it was assumed that nationality diversity has a positive effect on gender diversity, the result shows otherwise. Likewise, the board member’s interlocking directorate which is believed to have a negative effect apparently shows the opposite direction. As explained in the result section, the domination of men on board and family connection may be the reasons for this outcome.

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CONCLUSION

So, there has been a significant improvement of gender diversity in corporate boards in recent years. With an average increase of 0,5% for women every year (Catalyst, 2004), the progress could be seen in the growth of women’s representation in U.S companies that reach 14,6% in 2006 from 13,6% in 2003 (Campbell and Minguez-Vera, 2008). This number however is still low, since men still dominate the board with 80%. The glass ceiling still stays firmly in place, wherein the company policy is believed to have a contribution to this phenomenon.

Thus the remaining question is what should be done to deal with this issue? In trying to answer this question, the first solution is to focus on the object itself which is ‘women’. Since men perceive women as less ambitious, lacking of knowledge and skills therefore women should be able to promote themselves and be assertive about their own performance and ambitions (McKinsey and Company, 2007). By recognizing and appreciating their own achievement, it will be easy for women to be confident about their talent thus could lead to gaining recognition by others. This eventually would facilitate their way to gain promotion at work.

Next is the company factor. There should not be any policies that treat women unfairly. This could be done by promoting gender equality in the workplace e.g the same opportunity would be given to both men and women that has the same qualification. Moreover recruitment and career development system also should be encouraged to be gender-neutral (ibid, 2007). Coaching, mentoring and networking programs should be offered to encourage more women to reach higher position (McKinsey and Company, 2008). This also includes educating and training men co-worker to value diversity (Kochan et al, 2003; Muller-Mohl, 2008). In doing so, the attitude of discrimination toward women could be reduced or even eliminated. Creating a social environment that is supportive to working women also important. Since women have to balance career with family life therefore a support facilities such as childcare would be really helpful.

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By focusing this gender issue into Indonesia’s context, it could be said that the improvement has been quite impressive. Women’s higher education rate has been increase from 85,1% in 1992 to 93,2% in 2004 (UNDP, 2005). Companies seem more open in recruiting women into the board which could be partly confirm by this research wherein the participation of women in managerial position reach 11% compared with 1,2% in 2003 (Mawardi, 2003). Moreover, the introduction of soft quota of 30% for female candidates in the 2004 National House of Representative’s election is another government’s attempt to involve more women in the process of formulating policies that is gender-neutral (Utomo, 2005).

All in all it can be said that even though the glass door, the glass ceiling and the glass wall still exist, women participation in higher position is showing a positive improvement. Women in corporate board should not be treated as a token but as an individual who can give a contribution to the company. Likewise, all elements that involve in the creation of gender-neutral environment should work together in the implementation and enforcement of policy.

Limitation

This study has several limitations that give rise to possibilities for further research. First of all, the datasets used in this research comprises of 100 companies that were gathered from the list of 100 Index Kompas. So the first limitation is that the companies that are chosen as sample in this research are only those companies that regarded as the biggest companies in Indonesia. One may argue that the distribution of the companies should also cover medium and small companies. The reason for this, as explained in the methodology section, is that the accessibility of the data that are needed in conducting this research is really crucial. And since the collection of data only relies on secondary data and all of those companies that are listed in the 100 Index Kompas are obligated to enclose their company’s information to the public therefore the chosen companies in this research are considered to be the best solution. So, the choice of the largest companies in this research also meant that this result may not be a representative for all companies in Indonesia.

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The measurement of company’s internationalization is the next limitation of this research. This variable is only measured with the data of foreign shareholder and foreign board member. One may argue that these datasets are not accurate enough in measuring the internationalization of the company. But since many of Indonesian’s companies do not disclose their complete company’s information to the public, therefore other data such as foreign subsidiary and foreign sales could not be incorporated.

Furthermore, getting information about data of board member’s gender is also another problem. Since not all companies are disclosing this information, hence the unavailable data is solely based upon the author’s interpretation. Fortunately all of this data are Indonesian’s name and it is easy to make a distinction between man and woman just by looking at their given Indonesian name.

The lack of previous research in examining the condition of corporate boards in Indonesia was also a problem. The author failed to give a comprehensive picture regarding the situation in Indonesia’s environment toward gender issue, for instance the distinction between the role of the board of directors and the board of commissioners in Indonesia.

Another limitation in this research that is worth mentioning is the possibility of reverse-causality between gender diversity and the size of the company. Which raise a question whether a diverse board that creates additional value thus improving the productivity of the company or else the large companies that have resources to encourage diversity within its board (Carter et al, 2007). This issue however is beyond the scope of this research, since it needs more thorough investigation that requires more information that would not be possible to be found by just collecting information from secondary data.

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Potential for Further Research

Taking into account all of the limitations for this study, it can be stated that future research could cover larger samples that are equally distributed over 3 different types of companies in terms of size i.e small, medium and large companies wherein the datasets should incorporate all of the possible factor that may have an effect on the variable that is measured. Furthermore longitudinal data would be helpful in explaining the velocity of the process of gender diversity. Considering the country specific factors in this research, it would be better to examine other countries as well, whether a cases study or making a comparison between countries. By focusing into the board system, it also gives rise to make a research that examines the distinction role of women in board of director and board of commissioner.

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