The Role of Gender and Human Capital on the Appointment of New Corporate Directors to Boardroom Committees : Canadian Evidence

This study investigates the appointment of new corporate directors to various boardroom committees. Resource dependency and institutional theory provide theoretical reasons for why gender and human capital characteristics would differentiate committee membership. Using a matched sample of 159 women and 159 men during the period 1996 to 2004, this study finds that new female corporate directors are better utilized than their male counterparts. In their first year of joining a board, these new female corporate directors are appointed to both major and minor board committees, while the majority of the new male directors are appointed to no board committees. Overall, this study finds that gender rather than human capital characteristics determines the boardroom committee membership of new corporate directors.


Introduction
Appointments to a board of directors are a means for a firm to co-opt important resources (Pfeffer & Salancik, 1978).Board members bring a host of talents to the boardroom table.Referred to as human capital (Becker, 1964), it represents the unique talents of the specific director based on that individual's training, experience and knowledge.These are the cognitive and decision-making capabilities that the individual can contribute.The human capital construct has been used to explain how firms deal with complexity (Markarian & Parbonetti, 2007) and strategic changes (Haynes & Hillman, 2010), as well as the appointment of individuals to boards of directors (Baysinger & Zardkoohi, 1986;Dunn, 2011;Hillman et al., 2000Hillman et al., , 2002;;Singh et al., 2008) and to board committees (Bilimore & Piderit, 1994;Kesner, 1988;Peterson & Philpot, 2006).This study follows this line of research by examining the human capital characteristics of new board of director members and their appointment to board committees.
A second line of corporate governance research has examined the role of women on boards of directors.In their extensive review of the literature, Terjesen et al. (2009) summarize the extant research on the relationship that gender diversity has on corporate governance outcomes and firm performance.Their review also identifies some under-researched areas.One such area is the relative usefulness of the human capital of new female corporate directors after they have become fully integrated into the board and its committees (Terjesen et al., 2009, p. 333).This paper begins to answer this question by investigating whether or not gender and human capital influence the initial appointment of new directors to board committees.
Previous studies on board committees (Bilimoria & Piederit, 1994;Kesner, 1988;Peterson & Philpot, 2006) have been descriptive.They examine the characteristics of the entire committee at unique moments in time.However, this approach fails to identify the role that gender and human capital have on the initial appointment of new corporate directors to board committees.Consequently, this study adopts a different approach.It examines the characteristics of new appointees and not the characteristics of the committee after the new appointee has joined the committee.As such, this study provides new insights into new committee appointments.It investigates whether or not gender and human capital characteristics influence the immediate appointment of new directors onto board committees.
The remainder of the paper is organized as follows.The next section uses resource dependency theory and institutional theory to develop two research questions concerning the relationship between board committee memberships with, respectively, human capital characteristics and gender.It is followed by the methodology section and the results of the empirical analysis of a matched sample of 318 new corporate director appointments between 1997 and 2004.The last two sections of the paper are a discussion of the findings, and a conclusion.

Resource Dependency and Human Capital
Resource dependency theory argues that firms need access to critical resources in order to survive.One way of gaining those resources is through the firm's board of directors."When an organization appoints an individual to a board, it expects the individual will come to support the organization, will concern himself with its problems, will favorably present it to others, and will try to aid it."(Pfeffer & Salancik, 1978, p. 163).Directors provide these resources through a variety of ways.For example, they are the visible face of the firm adding prestige and legitimacy (Bernardi et al., 2002).A firm will appoint prestigious individuals to its board just before it makes an initial public offering of its stock in order to increase the legitimacy of the firm and thereby reduce its cost of capital (Certo, 2003;Chen et al., 2008).Directors also provide strategic advice and counsel (Carpenter & Westphal, 2001;Lorsch & MacIver, 1989).Researchers find a direct link between the composition of the board and the formulation of strategy (Haynes & Hillman, 2010;Judge & Zeithamal, 1992;Markarian & Parbonetti, 2007) as well as its subsequent impact on the financial performance of the firm (Baysinger & Butler, 1985).Finally, directors serve as links with the firm's external environment (Lester et al., 2008).Interlocking directorships help to diffuse innovation (Chua & Petty, 1999) and managerial practices (Davis, 1991;Geletkanycz & Hambrick, 1997).Overall, directors provide expertise and advice; they act as communication channels for receiving and transmitting information between the firm and its external constituents, as well as obtaining commitment and support from its external environment; and directors provide the firm with prestige and legitimacy (Pfeffer & Salancik, 1978;Zahra & Pearce, 1989).
Different firms need different critical resources in order to survive (Pfeffer & Salancik, 1978) and so they will strategically appoint various individuals to their boards of directors (Hillman et al., 2000).A critical resource that all directors bring to the boardroom is their human capital.Human capital refers to the individual's education, knowledge, skill and experience (Becker, 1964).Individuals are appointed to boards because it is anticipated that their specific human capital will be of use to the firm.As such, a firm will strategically appoint individuals to its board who have the skill sets that the firm requires.Furthermore, a firm may even rearrange the composition of its board as the resource needs of the firm change (Hillman et al., 2000).
Female corporate directors bring a different perspective (Zelechowski & Bilimora, 2004), knowledge and skill set (Hillman et al., 2000;Peterson & Philpot, 2007;Singh et al., 2008) to the boardroom.There are many advantages to having women on corporate boards.Diversity enhances creativity (Watson, et al., 1993) and innovation (Torchia et al., 2011).Diverse boards are better at dealing with complexity (Markarian & Parbonetti, 2007) and strategic change (Haynes & Hillman, 2010;Nielson & Huse, 2010).By putting women on the board, the firm is signalling that it values the other women who are working within the firm (Bilimoria, 2006).Female directors become their role models.
Diversity is also valued by external constituents, such as institutional investors (Gillan & Starks, 2000), and as such, many firms want this to be made known.Firms with female directors tend to advertise that fact by providing pictures of the members of the board in their annual reports (Bernardi et al., 2002).Even though these photographs tend to portray women as being less powerful and less influential than men (Buujaki & McConomy, 2010) the appearance of gender diversity, nevertheless, enhances social acceptability.Diversity increases the perceived legitimacy of the board of directors and therefore of the firm.
Women tend to have different professional experiences than their male counterparts (Nielson & Huse, 2010).Female directors tend to hold advance degrees, have broad non-business backgrounds, and join more firms at faster rates than their male counterparts (Hillman et al., 2000).Singh et al. (2008) find that British female directors are more likely to have MBA degrees and international work experience.Overall, women tend to bring a different set of human capital resources to the boardroom table.
So, the research question becomes: do the qualifications of female directors influence their appointment to board committees?The empirical evidence is mixed with respect to the influence of human capital on committee membership.Both Kesner (1988) and Bilimore and Piderit (1994) find that outside directors and individuals who have business backgrounds tend to be appointed to the powerful board committees, such as audit, nominating and compensation.Peterson and Philot (2006), on the other hand, find that human capital characteristics do not differentiate membership on the powerful board committees.
It is, therefore, an open question as to whether or not the human capital characteristics of female corporate directors influence their utilization on board committees.Furthermore, it is not known whether new corporate directors are appointed to committees immediately upon joining the board.Previous studies (Bilimore & Piderit, 1994;Kesner, 1988;Peterson & Philot, 2006) were cross-sectional, at unique moments in time, and, as such, they did not examine the timing of the board committee appointments.So, the first research question concerns whether or not the qualifications of new female corporate directors influences their immediate appointment to committees upon joining the board of directors.RQ1: Does human capital influence the appointment of new female corporate directors to boardroom committees?

Institutional Theory and Gender
Institutional theory argues that firms adopt various policies and procedures, not in order to improve their operations, but rather to enhance their perceived legitimacy (DiMaggio & Powell, 1983;Meyer & Rowan, 1977;Scott, 1995).Firms that conform to socially accepted patterns of behavior are less likely to have their activities challenged or questioned.As such, they have greater access to the resources required for their survival because there is less perceived uncertainty and risk associated with the firm.
However, institutional theory also posits that firms will often decouple organizational structures from actual operations (Meyer & Rowan, 1977).Structures may be incorporated as window dressing, designed to convey the image of propriety without actually being linked with the firm's activities.For example, a firm may appoint a woman to its board of directors, not to increase firm value, but rather to demonstrate that the board is diverse.In order to maintain diversity, when a woman leaves the board she may very well be replaced with another woman (Valenti, 2004).Using a sample of board appointments by Fortune 1,000 firms from 1990 to 1999, Farrell and Hersch (2005) find no stock market reaction to the announcement of a woman being appointed to a board of directors (Note 1).However, they do find that women are more likely to be added to boards that have low or no female representation.Furthermore, in order to maintain diversity, when a woman leaves the board she is more apt to be replaced with another woman.They note: "This does not imply that women added to a board are not qualified (e.g., we do not observe a negative share price effect), just that there is a preference given to adding a female board member until the diversity goal is met."(Farrell & Hersch, 2005: 104).This suggests tokenism.Female directors are simply being used to convey the appearance of social legitimacy.In other words, women may serve a more figurehead function than a genuine role.They may be window dressing (Note 2) and decoupled from having a truly effective influence by not being appointed to any committees, or, if appointed to committees, then to minor ones.This bias may be more evident in the first year of a female director entering the boardroom if she is not utilized on any committees.Furthermore, if there really is gender bias, then the reverse pattern would apply to men.In other words, relative to new female corporate directors, men in their first year of joining a board of directors would tend to be appointed to more committees, and would tend to be appointed to the more powerful and influential ones.This gives rise to the second research question.RQ2: Does gender influence the committee appointments of new board of director appointees?

Sample and Data
A comprehensive database of Canadian corporate directors is the Financial Post (FP) Directory of Directors that contains information on business men and women who are directors and executives of Canadian companies.The information in the database is provided by the individuals or by their firms.The 2004 FP list contains the names of 17,169 senior managers of whom 14,863 are men and 2,306 are women.
Because there are more male corporate directors than female directors, the sample selection began by identifying a group of new female corporate directors.Of the 2,306 women in the 2004 FP database, only 526 were listed as sitting on at least one corporate board of a publicly traded company.The 2004 proxy statement was read for each company on which the woman served as a director.If the individual was on the board of more than one company, then the proxy statements of all the companies were read to identify her earliest board appointment.The intention was to obtain, as far as possible, a sample of directors who were 'newbies'.That is, for each director, this was her first appointment to the board of a publicly traded company.This resulted in a sample of 159 women appointed to 159 different boards.No two women in the sample were appointed to the sample board in the same year.
A second sample was drawn, of male corporate directors.A similar procedure was followed.A random selection of men was drawn from the 2004 FP database.The 2004 proxy statement was read for each company on which the man served as a director.If more than one firm was listed, then the proxy statements for all the firms were read to identify the earliest appointment.If the year of his earliest appointment matched the year of one of the women in the sample, then that man was included in the male sample of directors.This was a very labor intensive process to ensure, as far as possible, that sample of male directors were also 'newbies' who had been appointed to the boards of publicly traded companies in the same year as each of the 159 female new appointees and that this was their first appointment to the board of a publicly traded company.Furthermore, the selection process ensured that no two men in the sample were appointed to the same board in the same year.
The result is a matched sample of new corporate directors who were appointed to boards in the same year.For example, eighteen women were new appointees to boards in 2000 (Table 1).These women were matched with eighteen men who were also new appointees to boards in 2000.Since all the data had to be gathered by hand, it was impossible to match the sample on any criteria other than gender, year of appointment, and being the first appointment to the board of a publicly traded company.Also, the sample period is restricted to board appointments after 1997 because of data availability limitations.Proxy statements prior to 1997 are unavailable on the Ontario Securities Commission database www.sedar.com.
Insert Table 1 Here The year the new director was appointed to the board was designated as the focal year.Demographic information about the firm, the board of directors, and the new corporate director was obtained from the focal year proxy statement.The proxy statement for the year subsequent to the focal year was read to identify the board committees, if any, that the new director sat on.

Data Analysis
In order to answer the research questions the data are analyzed using two approaches.The first is a test for statistical differences between the two matched samples with respect to (a) their human capital characteristics, and (b) their appointments to board committees within the first year of becoming a director.The second set of tests examines the causal factors that contribute to committee membership.The following model is used: Consistent with other empirical studies on board committee appointments (Bilimoria & Piderit, 1994;Kesner, 1988), a logistic regression is used because, as Peterson and Philpot (2006, p. 187) note, the results of the logistic regression "indicate the direction and magnitude of each variables influence, holding the other [variables] constant, on the odds of committee membership (Cohen et al., 2003)."The variables are defined in the next section.

Variables
Gender is a dichotomous variable coded 1 if the new board appointee is a woman and 0 if a man.Board committees were segregated into major and minor committees, consistent with previous research (Bilimoria & Piderit, 1994;Kesner, 1988;Peterson & Philpot, 2006).The three major committees are audit; governance, which includes corporate governance and nominating; and compensation, which includes compensation and human resources.Minor are all the other board committees.None means that the new appointee sits on no board committees within one year of being appointed to the board of directors.Hillman et al. (2000) developed a four-way classification of directors that is applicable to the American business environment.However, their typology masks the uniqueness of various types of business executives in Great Britain (Singh et al., 2008).Nor does it capture the uniqueness of Canadian directors with respect to individuals who have general support skills and those who have specialized expertise (Dunn, 2011).Consequently, following Dunn (2011), a five-way classification is used in this study.Insiders include current and former officers of the firm, as well as the firm's founder and the founder's family.Business experts are individuals who are CEOs or senior executives at either public or private for-profit firms.Specialists are professional bankers, lawyers, accountants, geologists, and engineers.Generalists are those who are management consultants or corporate directors.Service providers are individuals who are employed by universities, hospitals, the government and its agencies, as well as non-profit social and cultural organizations.Dichotomous human capital variables are created to capture the human capital of each new appointee based on whether or not the individual is an insider, business expert, specialist, generalist, or service provider.
Two control variables are added: service and size.There is an uneven distribution of people in various occupational sectors based on gender.A greater percentage of women are employed in the public sector (government and community services) than the percentage of women who work in the private sector.Also, those women who work in the private sector tend to be employed in service industries.In developed western economies, 84.3% of women in 2007 were employed in either public or private services while only 61.1% of the men were in the services sector (International Labour Organization, 2008).Furthermore, there tend to be more female directors in financial and service industries than in other sectors of the economy (Bilimoria, 2006;Bujaki & McConomy, 2010).So, the dichotomous variable, service, is added to control for whether or not the firm that appoints the new director is in the service sector.The service sector includes both financial institutions (SIC Division H) and service industries (SIC Division I).
Size is added as a control variable.It measures the number of individuals on the board of directors in the year in which the new appointee is appointed to the board.In a study of nearly 7,000 firms from 1990 to 2004, Linck et al. (2007) find that although board size tends to remain constant at 7.5 individuals, smaller (larger) firms are more likely to have smaller (larger) boards.Therefore, the model controls for the size of the board.It is added because a small board may mean that the new director is more apt to be appointed to a board committee in order to share the work load.

Committee Appointments
Table 2 summarizes the utilization of new board appointees within one year of joining a board of directors.New female corporate directors are appointed to more board committees than are their male counterparts.The women serve on an average of 1.18 committees, while the men serve on an average of 0.48 committees.This difference is statistically significant (p < .001).

Insert Table 2 Here
In their first year of being appointed to the board, women are appointed to more audit committees, more governance committees, more compensation committees and more minor committees than are the new male directors.These differences are all statistically significant (p < .001).Furthermore, men are more likely to serve on no committees.Over half (58.49%) of all new male appointees sit on no committees within one year of being appointed to the board of directors, whereas only 18.86% of the women sit on no committees.This difference is statistically significant (p <.001).Overall, these results indicate that gender influences board committee membership.Women are more likely than men to be utilized by being appointed to committees.

Human Capital and Gender
Table 3 provides the human capital characteristics of the new boardroom appointees.There are only two statistically significant differences between the men and women.A statistically greater percentage of the men are business executives (p < .05),while a statistically greater percentage of the women are service providers (p < .001).There are no other statistical differences with respect to their backgrounds as insiders, specialists or generalists.These results are consistent with Singh et al. (2008) and Peterson and Philpot (2007) who also find that men are more likely to be business executives, while women are more likely to be service providers relative to their gender counterparts.
Insert Table 3 Here

Utilization of New Directors
The results of the regressions are contained in Table 4.The coefficient of the gender variable is positive (indicating female) and statistically significant (at p < .01 or better) in each of the first four regressions.There is a high correlation between being a new female corporate director and being appointed to the audit committee, the governance committee, the compensation committee, as well as to a minor committee.However, the coefficient of the gender variable is negative (indicating male) and statistically significant (p < .001),for being appointed to no board committees.Overall, the results indicate that, within their first year of joining a board of directors, women are more likely to be appointed all types of committees, whereas men are more likely to be appointed to no committee.

Insert Table 4 Here
The results also indicate that human capital characteristics rarely influence board committee appointments.Specialists and generalists are positively associated with being appointed to the audit committee, while a business expert is less likely to be appointed to the governance committee.Human capital is not related with being on the compensation committee or with being appointed to a minor committee.Insiders, however, are more likely to be appointed to no board committees.
Of the control variables, size matters only with respect to the audit committee and no committees.None of the control variables is significant with respect to any other board committees.
Overall, the results of this study indicate that (a) women are utilized more than men for board committee work, (b) men are more likely to be on no committee than on a committee, and (c) human capital characteristics, with the exception of being an insider, do not influence board committee membership.

Discussion
Previous studies on board committees (Kesner, 1988;Bilimoria & Piederit, 1994;Peterson & Philpot, 2006) have noted that women tend to be marginalized and as such they have raised doubts about their effectiveness as corporate directors.The implication of those studies is that female directors may be mere window dressing.However, the results of this study confute that position.The female corporate directors in this study serve on all types of board committees within one year of entering the boardroom.
The results reveal that women are utilized more than men for board committee work.Within one year of their appointment to the board the vast majority of the women are given board committee responsibilities.Of those women with committee duties, most are appointed to the powerful board committees such as audit, governance, and compensation.This suggests neither tokenism nor window dressing.These are important board committees that have critical control and oversight responsibilities.They ensure that management is operating in the best interest of all stakeholders and that management is being remunerated in an appropriate manner.These are not committees that are taken lightly.
The findings are also consistent with the recommendations of the Dey Report (Dey, 1994).The Dey Report, which was commissioned by the Toronto Stock Exchange, "continues to be used as a foundation upon which other reports on governance of Canadian corporations are built."(Leblanc & Gillies, 2003, p. 1).Guideline number nine recommends that boardroom committee members be outside directors.This study shows that Canadian firms are following that recommendation.They are strengthening their corporate governance by excluding insiders from serving on board committees.Insiders are excellent at providing advice and counsel because of their specialized firm-specific knowledge.However, they lack the independence to objectively serve the board through committee work.
The results also indicate that men are not being utilized on board committees.Fifty-eight percent of the new male appointees are put on no board committees within one year of their appointment to the board.This is surprising.Why would a firm not make use of the talents and skills of these men?Forty-five percent of the new male appointees are business experts.These are CEOs who have the training and experience to help direct the strategic affairs of another firm, and yet, most have no committee duties.
A possible reason is provided by the results of this study.New appointees are being appointed on the basis of their gender rather than their skill set.Peterson and Philpot (2006) find that board committees already have a statistically significant number of business executives on them.Board committees do not need another business executive.But they could do with a woman, regardless of her unique skill set.Women may be placed on board committees for the same reasons that they are placed on boards.As was mentioned above, diverse groups have been shown to improve strategic decision-making.Women bring a new perspective that is just as valuable to board committees as it is to the entire board.Appointing a woman to a committee, regardless of her human capital characteristics, may improve the committee's performance simply because she has joined the committee.
This suggests that future researchers should investigate how effective women are on their various committees.For example, the performance of the committee could be measured both before and after she joins the committee to examine how and in what ways the performance of the committee has altered, both in terms of committee processes and committee output.Also, does the performance of these women change over time?Does tenure on the board and/or the committee affect production and process?This was the implied second question raised by Terjesen et al. (2009).Is the effectiveness of women with specific human capital characteristics different than the effectiveness of men with similar and/or different human capital attributes?More research is required.
There are few women in the boardroom, despite the fact that they have the skills to make a meaningful contribution.Future studies should investigate why this bias continues.Is there a relationship between the attitude of the firm towards women on the board and their attitude towards women as employees?Do firms use women as tokens to deflect criticism of gender bias in the workplace?There is much more work that needs to be conducted on the attitudes of the firm and its treatment of women in the boardroom.
There are several limitations to the study.First, the biographical data about the board of directors is on a self-disclosed basis.Although some background information is mandatory (e.g., work experience for the last five years), the data that are provided in a proxy statement are often quite brief, and there is no consistent presentation among firms.Nevertheless, the biographical data provided in this sample of proxy statements is so clear that there is no confusion in classifying the directors into one of the five human capital categories.Second, just because someone is appointed to a board committee does not mean that that individual will be an effective committee member.Decision-making processes are also critical (Finkelstein & Mooney, 2003).Third, depending upon power relationships at the board level, some committees may be merely symbolic, designed to enhance the perceived legitimacy of the firm while being decoupled from actually executing their function.It is impossible to know if this is happening since all the information used in this study is drawn from voluntary disclosures made by firms.

Conclusion
This study uses a match sample of 159 new female and 159 new male corporate directors who were appointed to the boards of directors of publicly traded Canadian corporations from 1996 to 2004.The results indicate that gender rather than human capital characteristics determines boardroom committee membership.For this sample, the majority of the new male directors are put on no board committees within one year of being appointed to the board, whereas, the new female directors are appointed to both the major board committees -audit, governance, and compensation -as well as the minor committees.Overall, the new female corporate directors are better utilized than their male counterparts.With respect to committee work, there has been an evolution over time.In the 1980's Kesner (1988) finds that gender differentiates membership on the major board committees.This pattern continued in the 1990's.Bilimoria and Piderit (1994) find that men are preferred for membership on most of the powerful committees, while women are preferred for the minor ones.In the 2000's, women began to come into their own.Peterson and Philpot (2006) find that, although there is still a preference for women on the minor committees, gender and human capital does not differentiate membership on the major ones.This study finds that the new female appointees are put onto both the major and minor committees, within one year of joining a board of directors.Although the number of women on corporate boards remains small, those who do enter the boardroom are well utilized and can influence firm behavior through their membership on these powerful board committees.So, the tide is changing for women, albeit slowly.

Notes
Note 1.This is consistent with prior research that finds that gender has no impact on the performance (measured by Tobin's Q) of Finish firms (Rose, 2007), nor on the performance (measured by ROE) of Canadian firms (Bujaki & McConomy, 2010).Note 2. See Terjesen at al. (2008) for a review of the literature on tokenism in the boardroom with respect to women and minorities.Note: The above table represents logistic regressions on whether or not the new director is on the audit committee, the governance committee, the compensation committee, a minor committee, or no committee.* p < .05,** p < .01,*** p < .001.

Table 1 .
Number of new appointees by year

Table 2 .
Utilization of new corporate directors

Table 4 .
Logistic regressions of committee membership