June 4, 2015
Study: How Board Gender Impacts M&A Decision-Making
This recent study taps “social identity theory” to address how gender differences among directors impact the board’s decision-making in the M&A context. As further described in this article, social identity theory in the board setting is the notion that the board’s behavior is a function of how individual directors perceive others and themselves in the context of the board as a whole.
Minority directors such as women, who are perceived as outside of the majority’s “in-group,” will tend to actively distinguish themselves in board group interactions. The net effect on the board as a whole is a more robust and drawn out decision-making process – consistent with the theory that diverse groups generally (regardless of context) tend to make more thorough, comprehensive decisions.
Based on social identity theory, the study’s authors expected that boards with female representation would be less likely to approve proposed deals, and – even assuming deal approval – less likely to approve larger (i.e., riskier) deals. To test the theory, the study reviewed the association between women on boards and the number and size of aquisitions among over 1,500 S&P 500 companies between 1998 and 2010.
As predicted based on the theory, greater female representation on boards was negatively correlated with the number and size of acquisitions – i.e., companies with above average representation by women on the board were associated with 18% fewer acquisitions and a 12% decreased acquisition size compared to companies with below average female board representation.
While acknowledging the strong support of their hypothesis about how social identity theory impacts boardroom conduct, the authors appropriately caution that comprehensive board decision-making and oversight – characteristic of more diverse boards – may not, in and of itself, always be good. Among other things, the board’s behavior resulting from “in” (majority) and “out” (minority) group categorizations could be associated with undesirable consequences, such as reduced cohesion and increased “coordination” costs. See also this Insead article.