Featured Post from Emory University, Goizueta Business School

Why are U.S. corporate boards under-diversified?

Feb 11, 2021

5 min

Grace Pownall

Research tells us that firms with diverse workforces generally outperform those that do not. And in recent years, corporate America has taken significant strides towards greater heterogeneity in the employee base. But a problem remains at the top.


U.S. boardrooms remain overwhelmingly Anglo Saxon and male. No less than 81 percent of the Standard & Poor (S&P) 1500 Index directors in America today are white men. White women account for 11 percent, while ethnic minority men make up 6 percent. Meanwhile, female minority board members account for just 2 percent of the total. For businesses, this is becoming problematic, not least because institutional investors and regulators like the Securities and Exchange Commission have started asking firms to open up about their processes in selecting board members. Where diversity is a criterion, firms are required to be transparent about specifications and frameworks.


Shedding light on this issue is new research from Grace Pownall, professor of accounting, and Justin Short, assistant professor of accounting, at Emory University’s Goizueta Business School. Together with Zawadi Lemayian of Washington University, they parsed 12 years of data on gender, ethnicity, and salaries from the S&P 1500 to build a composite picture of who’s who and who’s paid what in U.S. boardrooms. What they found points to a systemic shortage of female and minority executives making it onto shortlists for board appointments. But that’s not all. Once women and minority men do make it onto the board, there’s another roadblock waiting for them: they are not getting promoted at the same rate as their white, male counterparts.



There seem to be two complex dynamics at play, said Short: a glass ceiling effect hampering the upward trajectory of Black, female, and other minority executives, and what he and his co-authors call “myopic” bias on the part of corporate America.


“We developed two hypotheses that might explain what’s behind the lack of diversity on boards,” explained Short. “The glass ceiling hypothesis comes from what we see as a shortfall of women and ethnic minorities in the workforce relative to white men—so the theory here is that these groups just aren’t getting promoted to the point where they would be considered for board positions.”


“The alternative hypothesis we worked on was that there might actually be a plentiful supply, but that companies just don’t see directors from different backgrounds as being as valuable in the same way,” he said. “And we would put this down to some kind of institutional myopia or bias at the very highest echelons of business.”



To put these hypotheses to the test, Short and his colleagues first collected demographical data on American board members from a database compiled by Institutional Shareholders Services. Here they were able to determine the gender and ethnicity of individuals. They also ran a simple statistical regression on salaries using data from S&P. Then they compared the two.


“Economic theory tells us that if there’s a high demand for diverse directors—women and ethnic minorities—and there’s a low supply of them, then these directors will be able to command higher salaries than others,” said Short. “It’s a simple case of supply and demand, and minorities will come at a greater premium.”


Looking at the S&P 1500 data, they found that female and minority directors were indeed getting paid more on average than white male counterparts in other companies. And when they analyzed this more closely, Short and his co-authors found that these salaries were in general being paid by larger, more successful firms.


“We can see that women and minorities are commanding higher compensation than the average white male director across the S&P universe of 1500 companies, and it’s the bigger, better paying firms that are hiring them,” Short said. “So that tells us that the top companies are proactively trying to build diversity in their boardrooms. At the same time, it shows there is a deficit of supply in this talent pool—the so-called glass ceiling dynamic.”


To understand whether bias or institutional myopia might also be limiting the prospects of Black, female, and ethnic directors, Short et al. also looked at differences in compensation within the same company, and here they found something striking. While they made more on average than the typical white male director in U.S. firms, minority directors were being paid around 3 percent less than their direct counterparts – the white male directors on the same board.


All this scrutiny begs the questions: What is going on in the American boardroom? And why is there still such a stark lack of diversity in the upper echelons of business in the U.S. today?


“This tells us something important,” said Short. “Once these directors make it to the board, for most of them that’s it. They don’t advance or achieve promotion at the same rate.”



This could be due to bias or what Short calls a Rolodex effect: “Maybe it’s because they didn’t go to the same school as the chairman of the board, or weren’t connected socially in the same way, so they don’t appear in the Rolodex of candidates with right or familiar credentials to get promoted within the board,” he said. “We know it’s not about hard skills or aptitudes because the data shows us that women and minority directors typically hold more qualifications than their counterparts. But for whatever reason, once they are on the board, they fail to advance in the same way as white men.”


Interestingly, Short and his colleagues found that there was a very small number of women and minority directors sitting on the boards of multiple companies in the U.S.


“Pulling it all together, we see that there’s a generalized shortage of women and ethnic group candidates in the U.S.,” Short said. “Successful companies are proactively on the lookout for them and offer higher compensation to attract them.


“But there seems to be a glass ceiling effect acting as a bottle neck for talent. We also see that minority directors become a bit stuck once they’re on a board. The upward momentum tails off relative to their white, male colleagues. This could be due to bias or myopic thinking.”


All of this should provide rich food for thought for the most senior decision-makers in U.S. enterprises, according to Short and his co-authors.


With the pressure on to drive board-level diversity in corporate American, leaders need to be cognizant of the roadblocks or cut-off points to tie to ethnicity and gender.


“Diversity is something we urgently need to enable and nurture in the United States. Without diversity, creativity and innovation can stall, and in business you run the risk of deferring to group think—sourcing ideas and perspectives from the same small pool of shared experience or expertise,” said Short.


“It’s encouraging to see that diversity has increased over time and the largest companies are proactive. But there are still vast gaps of representation on the board compared to the workforce. There’s still work to be done because diversity in American business should be commonplace.”


If you are a journalist looking to cover this research or to learn more about the diversification of corporate boards in America, then let our experts help.


Grace Pownall, professor of accounting, and Justin Short, assistant professor of accounting, at Emory University’s Goizueta Business School are both available for interviews; simply click on either expert's icon to arrange a time today.





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Grace Pownall

Professor Emerita of Accounting
Information and Global Capital MarketsVoluntary Disclosure Incentives and PracticesInternational Accounting

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Expert Perspective: The Hidden Costs of Cultural Appropriation

In our interconnected world, cultural borrowing is everywhere. But why do some instances earn applause while others provoke outrage? This question is becoming increasingly crucial for business leaders who must carefully navigate cultural boundaries. Take the backlash the Kardashian-Jenner family faced for adopting styles from minority cultures or the controversy over non-Indigenous designers using Native American patterns in fashion. These examples highlight the issue of cultural appropriation, where borrowing elements from another culture without genuine understanding or respect can lead to accusations of exploitation. Abraham Oshotse, an assistant professor of organization and management at Goizueta Business School, along with Assistant Professor of Sociology and Anthropology at Hebrew University Yael Berda and Associate Professor of Organizational Behavior at the Stanford Graduate School of Business Amir Goldberg, explores this in their research on “cultural tariffing.” They shed light on why high-status individuals, such as celebrities or industry leaders, often come under fire when crossing cultural boundaries. The Concept of Cultural Tariffing Oshotse and coauthors define cultural tariffing as “the act of imposing a social cost on cultural boundary crossing. It is levied on high-status actors crossing into low-status culture, in order to mitigate the reproduction of the status inequality.” This notion suggests that the acceptance or rejection of cultural boundary-crossing is influenced by the perceived costs and benefits. Cultural appropriation involves taking elements from a culture that one does not belong to, without permission or authority. For example, when Elvis Presley brought African-American music into the mainstream, it was initially seen as elevating the genre. However, in today’s context, such acts might be criticized as appropriation rather than celebration. This research seeks to analyze people’s modern reactions to different examples of cultural boundary-crossing and which conditions induce cultural tariffing. The Hypotheses The researchers make four hypotheses about participants’ reactions to cultural appropriation: People will disapprove of cultural borrowing if there’s a clear power imbalance, with the borrowing group having more status or privilege than the group they are borrowing from. Cultural borrowing is more likely to be criticized if the person doing it has a higher socioeconomic status within their social group. Cultural borrowing is more likely to be criticized if the person doing it has only a shallow connection to the culture they’re borrowing from. Cultural borrowing is more likely to be criticized if the person doing it benefits more from it than the people from the culture they are borrowing from. Put to the Test Oshotse et al exposed respondents to four scenarios per hypothesis (16 total) with a permissible and a transgressive condition. In the permissible condition, subjects exhibit lower status or socioeconomic standing or a stronger connection to the target culture. Subjects in the transgressive condition exhibit a higher status or socioeconomic standing and less of an authentic connection to the target culture. Insights from the Study Oshotse’s study offers four key insights: Status Matters: Cultural boundary-crossing is more likely to generate disapproval if there’s a clear status difference favoring the adopter. Superficial Connections: The less authentic the adopter’s connection to the target culture, the more likely they are to face backlash. Socioeconomic Influence: Higher socioeconomic status within the adopter’s social group increases the likelihood of disapproval. Value Extraction: The more value the adopter gains relative to the culture they’re borrowing from, the higher the disapproval. These insights are crucial for leaders who want to navigate cultural boundaries successfully, ensuring their actions are seen as respectful and inclusive rather than exploitative. Real-World Implications for Business Leaders Why does this matter for business leaders? Understanding cultural tariffing is crucial when expanding into new markets, launching multicultural campaigns, or even managing diverse teams. The research suggests that crossing cultural boundaries without deep understanding or respect can backfire. That’s especially true when the adopter holds a higher socioeconomic status. Consider the example of a luxury brand adopting traditional African patterns without engaging with the communities behind them. In this case, it risks being seen as exploitative rather than innovative. The consequences aren’t just reputational; they can also impact the brand’s bottom line. This research isn’t just about isolated incidents; it mirrors sweeping societal shifts. Over the past 50 years, Western views have evolved to embrace ethnic diversity and multicultural exchange. But with this newfound appreciation comes a fresh set of challenges. Today’s leaders must navigate cultural interactions with greater care, fully aware of the historical and social contexts that shape perceptions of appropriation. In today’s global and interconnected business landscape, mastering the subtleties of cultural appropriation and tariffing is crucial. Leaders who tread thoughtfully can boost their reputation and success, while those who falter may face serious backlash. By understanding the hidden costs of crossing cultural boundaries, business leaders can cultivate authentic exchanges and steer clear of the pitfalls of appropriation. Abraham Oshotse is an assistant professor of organization & management. He is available speak to media regarding  this important topic - simply click on his icon now to arrange an interview today.

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