Hostname: page-component-745bb68f8f-b6zl4 Total loading time: 0 Render date: 2025-02-03T03:43:53.326Z Has data issue: false hasContentIssue false
  • English
  • Français

Older boards are better boards, so beware of diversity targets

Published online by Cambridge University Press:  27 December 2019

Elizabeth Prior Jonson Open the ORCID record for Elizabeth Prior Jonson [Opens in a new window] ,
Linda McGuire ,
Sharif Rasel Open the ORCID record for Sharif Rasel [Opens in a new window]  and
Brian Cooper
Elizabeth Prior Jonson*
Affiliation:
Department of Management, Monash Business School, Monash University, Victoria3800, Australia
Linda McGuire
Affiliation:
Department of Management, Monash Business School, Monash University, Victoria3800, Australia
Sharif Rasel
Affiliation:
Department of Management, Monash Business School, Monash University, Victoria3800, Australia
Brian Cooper
Affiliation:
Department of Management, Monash Business School, Monash University, Victoria3800, Australia
*
*Corresponding author. Email: elizabeth.priorjonson@monash.edu
Get access Rights & Permissions [Opens in a new window]

Abstract

This study examined 130 Australian companies from the ASX 500 All Ordinaries between 2011 and 2015. We performed regression analysis on the effects of age of the board (mean age and age diversity) upon financial performance (measured by ROA and Tobin's Q). Controlling for board size, firm size and industry sector, we found that the average age of board members is positively associated with firm performance as measured by ROA. Boards with an older average age of directors perform better than boards with a younger average age. There was no significant relationship between age diversity as measured by the within-board standard deviation on the two performance measures. The primary focus of our study was age. However, an interesting concomitant finding is that the focus on increasing female representation on boards will lower the average age of a board (as female directors tend to be significantly younger than their male counterparts) and this may have an adverse impact on financial performance.

Keywords

agediversitycorporate governance and financial performance
Type
Research Article
Information
Journal of Management & Organization , Volume 26 , Issue 1 , January 2020 , pp. 15 - 28
Copyright
Copyright © Cambridge University Press and Australian and New Zealand Academy of Management 2019

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

ACSI. (2016). Australian Council of Superannuation Investors, 2016. Annual Survey Board Composition and Non-Executive Director Pay in ASX200 Companies, November.Google Scholar
Albrechtsen, J., & White, A. (2018). Chris Corrigan attacks business gender targets, The Australian Business Review, May 19 2018. Retrieved from https://www.theaustralian.com.au/business/chris-corrigan-attacks-business-gender-targets/news-story/f2fcb8607a28ebb5abbc5bfcffbcdf39.Google Scholar
Ali, M., Ng, Y., & Kulik, C. (2014). Board age and gender diversity: A test of competing linear and curvilinear predictions. Journal of Business Ethics, 125, 497–512.CrossRefGoogle Scholar
Arellano, M. (1987). Computing robust standard errors for within-groups estimators. Oxford Bulletin of Economics & Statistics, 49(4), 431–434.CrossRefGoogle Scholar
Bonn, I. (2004). Board structure and firm performance: Evidence from Australia. Journal of the Australian and New Zealand Academy of Management, 10(1), 14–24.Google Scholar
Cameron, A. C., & Miller, D. L. (2015). A practitioner's guide to cluster-robust inference. Journal of Human Resources, 50(2), 317–372.CrossRefGoogle Scholar
CEW. (2017). Chief Executive Women, Senior Executive Census 2017. Retrieved from https://cew.org.au/wp-content/uploads/2017/09/CEW-Executive-Census-2017.pdf.Google Scholar
CEW (2018). Chief Executive Women, Women leaders enabling women leaders, Senior Executive Census 2018, Volume 2, September 2018. Retrieved from https://cew.org.au/wp-content/uploads/2018/09/CEW-Senior-Executive-Census-2018-FINAL.pdfGoogle Scholar
Chapple, L., & Humphry, J. E. (2014). Does board gender diversity have a financial impact? Evidence using stock portfolio performance. Journal of Business Ethics, 122, 700–723.CrossRefGoogle Scholar
Corrs Chambers Westgarth. (2015). ASX boards are getting younger, Media Release May 1. Retrieved from http://www.corrs.com.au/news/asx-200-boards-are-getting-younger/.Google Scholar
European Commission. (2010). Corporate Governance in Financial Institutions: Lessons to be drawn from the current financial crisis, best practices. Accompanying document to the Green Paper: Corporate governance in financial institutions and remuneration policies. 2 June 2010. Brussels: European Commission. Retrieved from https://www.findevgateway.org/sites/default/files/mfg-en-paper-corporate-governance-in-financial-institutions-lessons-to-be-drawn-from-the-current-financial-crisis-best-practices-jun-2010.pdf.Google Scholar
Featherstone, T. (2018). Push to reduce average board age intensifies but case for older and younger directors has equal merit based on performance. Media Release February 22, AICD Governance Leadership Centre. Retrieved from https://aicd.companydirectors.com.au/advocacy/governance-leadership-centre/governance-driving-performance/push-to-reduce-average-board-age-intensifies.Google Scholar
Ferrero-Ferrero, I., Fernández-Izquierdo, M. Á., & Muñoz-Torres, M. J. (2015). Age diversity: An empirical study in the board of directors. Cybernetics and Systems, 46(3–4), 249–270.CrossRefGoogle Scholar
Groysberg, B., Cheng, Y., & Bell, D. (2016). Global board of directors survey. Spenser Stewart and Women Corporate Directors Foundation. Retrieved from https://www.spencerstuart.com/research-and-insight/2016-global-board-of-directors-survey.Google Scholar
Hafsi, T., & Turgu, G. (2012). Boardroom diversity and its effect on social performance: Conceptualization and empirical evidence. Journal of Business Ethics, 112, 463–479.CrossRefGoogle Scholar
Horvath, R., & Spirollari, P. (2012). Do the board of directors’ characteristics influence firm's performance? The U.S. evidence. Prague Economic Papers, 4, 470–486.CrossRefGoogle Scholar
Ingram, T. (2017). Fortescue's Elizabeth Gaines says board diversity push creates a C-Suite vacuum, Australian Financial Review, 22 February. Retrieved from http://www.afr.com/leadership/company-culture/fortescues-elizabeth-gaines-says-board-diversity-push-creates-a-csuite-vacuum-20170406-gvf3p5#ixzz5EJ5YCM1i.Google Scholar
Jhunjhunwala, S, & Mishra, R. K. (2018). Board diversity and corporate performance: The Indian evidence (November 8, 2012). The IUP Journal of Corporate Governance, XI(3), 71–79.Google Scholar
Kitney, D. (2018) Treatment of AMP chair Brenner was sexist, Proust says, The Australian, 30 December. Retrieved from https://www.theaustralian.com.au/business/treatment-of-amp-chair-brenner-was-sexist-proust-says/news-story/b228c2cd2aca533f65e5400b8885e747.Google Scholar
Korporal, G. (2018). Directors reject idea gender quota behind AMP, bank failures, The Australian Business Review 2 May. Retrieved from https://www.theaustralian.com.au/business/companies/women-reject-idea-gender-quota-behind-amp-bank-failures/news-story/22ef625c35260982576fde99d9fe4d8e.Google Scholar
Mahadeo, J.D., Teerooven Soobaroyen, T., & Hanuman, V. O. (2012). Board composition and financial performance: Uncovering the effects of diversity in an emerging economy. Journal of Business Ethics, 105, 375–388.CrossRefGoogle Scholar
McIntyre, M.L., Murphy, M., & Mitchell, P. (2007). The Top Team: Examining board composition and performance. Corporate Governance: The International Journal of Business in Society, 7(5), 547–561.CrossRefGoogle Scholar
McKinnon, S. (2018). Elizabeth Gaines says embracing diversity is proven to drive better company performance, The West Australian, 4 April. Retrieved from https://thewest.com.au/business/leadership/gender-ethnic-diversity-puts-fortescue-metals-group-at-forefront-of-social-change-says-chief-elizabeth-gaines-ng-b88794514z.Google Scholar
Muth, M., & Donaldson, L. (1998). Stewardship theory and board structure: A contingency approach. Corporate Governance: An International Review 6(1), 5–28.CrossRefGoogle Scholar
Nguyen, P., Rahman, N. A., Tong, A., & Zhao, R. (2016). Board size and firm value: Evidence from Australia. Journal of Management & Governance, 20(4), 851–873CrossRefGoogle Scholar
OECD (2017) Organisation for Economic Cooperation and Development. The pursuit of gender equality. An uphill battle, October, Paris, France: OECD.Google Scholar
Pfeffer, J, & Salancik, G. (1978). The external control of organizations: A resource dependence perspective, New York: Harper and Row Publishers.Google Scholar
Rhode, D., & Packel, A. K. (2014). Diversity on corporate boards: How much difference does difference make? Delaware Journal of Corporate Law (DJCL), 3(2), 377–426.Google Scholar
Richard, P., Devinney, T., Yip, G., & Johnson, G. (2009). Measuring organizational performance: Towards methodological best practice. Journal of Management, 35(3), 718–804.CrossRefGoogle Scholar
Rogers, W. (1994). Regression standard errors in clustered samples. Stata Technical Bulletin, 13, 19–23.Google Scholar
Stafford, J. (2008). Inside AICD Board selection, Australian Institute of Company Directors Magazine, December. Retrieved from http://www.companydirectors.com.au/director-resource-centre/publications/company-director-magazine/2000-to-2009-back-editions/2008/december/inside-aicd-board-selection-dec08.Google Scholar
The Economist (2018) Are gender quotas good for business, 3 September.Google Scholar
Thomas, D. A., & Ely, R. J. (1996). Making differences matter: A new paradigm for managing diversity. Harvard Business Review, 74(5), 79–90.Google Scholar
Williamson, O. E. (1981). The economics of organization: The transaction cost approach. American Journal of Sociology, 87, 548–577.CrossRefGoogle Scholar