Boardroom Diversity

Countering the old-boy network, lack of worker's voice, and the exclusion of women from boards

American boardrooms — which in principle guide the actions and deliberations of senior executives — are a mess. And it a multi-layered mess.

First of all, workers have little say in what goes on in the boardroom. Robert Reich, the former Secretary of Labor, ginned up 5 Ways to Stop Corporations From Ruining the Future of Work that includes some help in this area:

First, workers need a stronger voice, from the boardroom to the shop floor. Workers at all levels should participate in the design, development, and deployment of technology in the workplace – as they do in Germany. 

This is not only good for workers. It’s also good for companies that otherwise waste countless dollars trying to figure out how best to use new technologies without consulting frontline workers who are closest to processes and products, and know how to get maximum use out of new technologies. 

[His other four recommendations make good policy reading too, by the way.]

The German approach grew out of voluntary ‘workers councils’, but became encoded in law. The antagonism between American management practices and organized labor made it difficult to institutionalize worker representation, and the decline of union power has had a major effect as well. But Justin Fox points out in a recitation of worker ‘codetermination’ in the US, that in 1994 Robert Reich sought to extend the National Labor Relations Act to pave a path to worker involvement programs, and notes that union representatives have served on boards like those of General Motors and Chrysler. That effort was co-opted by Republicans in Congress and ultimately vetoed by President Clinton.

Elizabeth Warren proposed 40% worker representation on boards as part of her presidential campaign, a plank that President Biden has not adopted, alas.

Lenore Palladino makes a detailed case for worker recommendation on boards:

Corporations are social institutions embedded in a political context that shapes the markets and democratically determines the rules of corporate behavior through the political process. Economic arguments for worker-directors include normative claims that workers should have voice and instrumental claims that voice will improve corporate productivity. Decision-making should be shared among the various stakeholder groups that contribute to corporate success through stakeholder representation on the board. Workers serving on corporate boards are able to participate in business decision making and create greater visibility and consideration for the effects of those decisions on workers. Freeman & Lazear (1995) find that increased worker voice can allow more effective information transfer from board to worker, which reduces monitoring costs, creates motivation for workers, and promotes convergence of interest between shareholders and employees. Participation may further encourage employees to take a longer time-horizon view of the firm and increase firm-specific investment.

Workers are crucial stakeholders for the success of large corporations, the drivers of the U.S. economy. The model of shareholder primacy should be replaced with a stakeholder theory of the corporation. In the stakeholder model, workers should elect and serve in substantial proportion on the corporate board of directors.

A second aspect of the poor state of corporate boards in the US is the low proportion of women board members, even when there is a great deal of evidence their presence significantly benefits the companies they serve. In When Women Are on Boards, Male CEOs Are Less Overconfident, Jie Chen, Woon Sau Leung, Wei Song, and Marc Goergen present research findings on a particular outcome of women board members: When they’re around, men do less stupid things.

A number of governments (notably those in India, California, and parts of Europe) are pushing for greater female representation in the boardroom. And several studies suggest why: Having women on the board results better acquisition and investment decisions and in less aggressive risk-taking, yielding benefits for shareholders. What’s less clear is why these effects happen. Our research suggests one potential reason: Having female board members helps temper the overconfidence of male CEOs, improving overall decision making for the company.

They cite research that shows a number of elements at work:

  • Greater diversity of viewpoints improves the quality of board deliberations

  • Women are less conformist, and more likely to express independent views, and not being as closely tied to old boy networks, they are more willing to counter the CEO.

Their research yielded these results:

We found that female board representation reduced the negative impact of the crisis on firm performance (measured by firm value, return on assets, and return on equity) because CEOs of firms with female board representation were less likely to adopt aggressive strategies that made their firms more vulnerable to the crisis. Firms that did not have female board representation suffered a greater drop in performance on these measures.

And it could be that this correlates with the sociopathic inclinations of senior executives. In Ex-Corporate Lawyer’s Idea: Rein In ‘Sociopaths’ in the Boardroom, Andrew Ross Serkin profiles Jamie Gamble, a retired corporate lawyer, who claims executives are forced into acting like sociopaths:

Mr. Gamble has had an epiphany since retiring nearly a decade ago that is so damning of his former life that it is likely to give his ex-partners a case of agita.

He has concluded that corporate executives — the people who hired him and that his firm sought to protect — “are legally obligated to act like sociopaths.”

[…]

Mr. Gamble’s change of heart will not exactly come as a revelation to the increasingly vocal group of investors, politicians and even chief executives who are pushing companies to be more responsible and to focus on metrics like environmental sustainability and corporate governance rather than on simply maximizing profits.

But in the world of corporate lawyers — and the board governance experts among whom it is quietly getting attention — Mr. Gamble’s essay may be a watershed.

He doesn’t blame his former clients, exactly. He blames the law.

His solution? Every company should “adopt a binding set of ethical rules, approved by stockholders and addressing the key ethical dimensions of corporate life” which would bind the executives to meeting those rules.

He doesn’t offer some sterling example of such rules, note, or how to set about defining those rules. But a good starting point might be to include workers and women in their formation.

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Elsewhere

Ezra Klein, in ‘There’s No Natural Dignity in Work’, makes the case for a parenting wage as opposed to the supposed dignity of work:

There is no evidence that spending long hours as a day care worker for someone else’s child or a health aide for someone else’s parent is somehow a better choice than caring for your own family. It can look that way in the statistics, if we consign poor families to poverty when a parent feels she needs to stay home. But that is society simply measuring the outcome of its own cruelty and calling the result economics.

“People on the right always say, what about the dignity of work?” [Jamila] Michener [co-director of Cornell’s Center for Health Equity] told me, “and my answer is: What about the dignity of dignity? The ability to be of sound body and mind and do the things most human beings want to do: spend time with your family. Have some time for leisure. Of course there can be dignity in work, and we should create the circumstances to make that possible, but there’s no natural dignity in work. We’ve needed labor movements because work can be harmful and oppressive unless we organize to make sure it has dignity. There are a lot of other factors and ways we need to intervene if we want work and dignity to be words we can use in the same sentence. And the way we do our social policy in this country, we have no right to use those words in the same sentence.”

In Why Anthropology Matters, Wade Davis takes on the task of defending anthropology as a discipline, motivated by various evaluations that asserted that this field was the least valuable undergraduate major. He goes on to catalog the myriad premises that have fallen away in the past few generations — like White racial superiority, and the inviolability of gender — due in large part to the work of Franz Boas and his students — Margaret Mead, Alfred Kroeber, Elsie Clews Parsons, Melville Herskovits, Edward Sapir, Robert Lowie, Ruth Benedict, Zora Neale Hurston and many others — who overturned the reigning preconceptions of the pre-modern world:

As a scholar, Boas ranks with Einstein, Darwin and Freud as one of the four intellectual pillars of modernity. His core idea, distilled in the notion of cultural relativism, was a radical departure, as unique in its way as was Einstein’s theory of relativity in the discipline of physics. Everything Boas proposed ran against orthodoxy. It was a shattering of the European mind, the sociological equivalent of the splitting of the atom. And though his research took him to esoteric realms of myth and shamanism, symbolism and the spirit, he remained grounded in the politics of racial and economic justice, the promise and potential of social change. A tireless campaigner for human rights, Boas maintained always that anthropology as a science only made sense if it was practiced in the service of a higher tolerance. “It is possible,” wrote Thomas Gossett in his 1963 book Race: The History of an Idea in America, that “Boas did more to combat race prejudice than any other person in history."

And this line, in support of anthropology itself, stands out:

Anthropology matters because it allows us to look beneath the surface of things. The very existence of other ways of being, other ways of thinking, other visions of life itself, puts the lie to those in our own culture who say that we cannot change, as we know we must, the fundamental way in which we inhabit this planet.