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Critical Mass Theory (Inclusive of MCCG 2021 revision) ~ Theories of Corporate Governance Series
The document discusses critical mass theory and its application to women on corporate boards of directors. It defines critical mass theory as suggesting that the nature of group interactions depends on minority group size, and that a threshold exists where the minority is able to influence the larger group. Research presented finds that three individuals generally constitutes a critical mass and can influence group dynamics. As it applies to boards, studies indicate that having at least three women directors allows for a critical mass where the women are better able to participate and influence discussions. The document also discusses how Norway achieved a critical mass of women on boards through quota legislation requiring at least 40% representation of both genders.
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Critical Mass Theory (Inclusive of MCCG 2021 revision) ~ Theories of Corporate Governance Series
- 1. Critical Mass Theory~ Women Board of Directors (inclusive of MCCG 2021 revision) Theories of Corporate Governance Series Dayana Mastura Baharudin
- 2. Women’s Contribution as Boardof Directors • Many authors argued that women directors on corporate boards offer many contributions (Bilimoria, 1995; Bilimoria and Huse, 1997) • such as new ideas, more communication and transformation in the management style (Rosener, 1990; Milliken and Martins, 1996; Daily, Certo and Dalton, 1999), • and lead to an increase of firm performance (Erhardt, Werbel and Schrader, 2003; Farrell and Hersch, 2005).
- 3. Normative case for Womenon Boards • The “normative case” for more women and minorities suggests that it is unethical for groups of people to be denied access to societal power solely as a result of individual traits, unrelated to ability, such as their gender, race, religion (Keasey, Thompson and Wright, 1997; Carver, 2002).
- 4. Business Case forWomen on Boards • A “business case” for more women on corporate boards - The main argument is that women represent a diversity that is needed in the boardrooms (Milliken and Martin, 1996; Huse and Solberg, 2006). • Another argument is about the use of knowledge; • If a segment of society talent is systematically excluded from board directorships not because of competence, but due to gender, this leads to suboptimal company boards (Burke, 1999; Cassell, 2000; Carver, 2002).
- 5. Gender Diversity - Boardroom •Diversity should lead to more effective boardroom behaviour, a better understanding of the marketplace and the workforce and better decision-making.
- 6. • Corporate performance,instead, is impacted by board diversity in terms of enhancing the reputation of the company, bringing legitimacy, attracting funds from ethical investors and inspiring women at lower management tiers in the organization. Gender Diversity – Company Performance
- 7. Critical Mass theory • Thecritical mass theory (Kanter, 1977a; 1977b; 1987; Greed, 2000; Lortie-Lussier and Rinfret, 2002; Childs and Krook, 2008; Erkut et. al., 2008) may improve our understanding of the contribution of women to corporate boards.
- 8. Critical Mass theory– 1 or 2 or 3 Women? • Studies on women directors raise the following questions: how many women are there? • Are they able to express their capabilities, personalities, feelings, and behaviours? • How many women must be introduced in the board to make a difference? • One, two, three or more? And which are the effects of different women minorities in the boardroom? • When do women directors behave effectively acting as a qualified minority?
- 9. Critical Mass Theory fromNuclear Physics • The critical mass perspective or theory (Kanter, 1977a; 1977b; 1987; Greed, 2000; Lortie-Lussier and Rinfret, 2002; Erkut et al., 2008; Childs and Krook, 2008) falls within this second strand of literature. • It derives from nuclear physics and its application to social science can be traced to Granovetter’s analysis of collective behaviour (Granovetter, 1978). • Applied to social science, its main contribution is to suggest that the nature of group interactions depends upon minority group size.
- 10. Critical Mass Theoryfrom Nuclear Physics – part 2 • In particular, shifting the size of a minority group also changes the impact on the larger group, moreover, that impact becomes more pronounced when the size of the minority group reaches a certain threshold, or a critical mass. • In particular when a certain threshold is reached the degree of a subgroup’s influence grow. • Because, as suggested by the theory, there is a qualitative change in the nature of group interactions, as the minority starts to assert itself and thereby transforms the institution’s culture, norms and values (Norris and Lovenduski, 2001).
- 11. Asch 1955 ~Critical Mass • In order to understand how many women directors constitute a critical mass we focus our attention on the studies of Asch (1951; 1955). • Asch shows that when an individual is faced with the opinion of three unanimous people, he/she is likely to conform to the unanimous “majority” opinion.
- 12. Asch 1955 ~Critical Mass • Moreover, the effectiveness of the group pressure markedly increases when a group size is three (Asch, 1955). Asch concluded that a minority size of three is sufficient for the full impact of the group to be felt. • Accordingly, also other studies suggest that three people constitute a critical mass that can be very influential in a group setting (Tanford and Penrod, 1984; Bond, 2005; Nemeth, 1986).
- 13. Critical Mass –Women on Boards • Moreover, previous studies on women on corporate boards (Erkut et al., 2008) suggested that the presence of three or more women can create a critical mass which enables women to substantially influence the content and process of board discussions. • Therefore, according to these studies critical mass is reached when there are “at- least-three” women directors.
- 14. Critical Mass theory inpolitics • Critical mass theory has gained wide currency over the last twenty years among politicians, the media and international organisations as a justification for measures to bring more women into political office (Grey, 2006). • Moreover, several scholars have applied the critical mass theory to the legislative and political setting (Childs and Krook, 2008; Grey, 2002)
- 15. Critical Mass theory inbusiness • Despite the appeal of critical mass theory and its use in legislative and political research, there are few studies that have used critical mass theory to explore women’s contributions to corporate board of directors (Erkut et al., 2008; Konrad et al., 2008).
- 16. Norway – 40%Women Board of Directors • Norwegian legislation makes Norway one of the few countries in the world with a sufficient number of companies where gender diversity can be said to have been taken beyond tokenism. • In 2005, the Norwegian government passed a quota law requiring Norwegian public limited-liability companies (ASAs) to have at least 40% of each gender represented on their board of directors
- 17. From Tokenism to CriticalMass • In this regard, for decades research has studied the effects of majority and minority influence in small groups. • These studies demonstrate that the majority exerts more influence in a group of people than minorities do, by virtue of their greater numbers (Asch, 1951,1955; Tanford and penrod,1984). • Minorities are easily marginalized when their presence in a larger group is modest.
- 18. Three Women –is not a crowd • Konrad et al (2008) reported that women directors who were the sole women on a board had to struggle hard to be heard in board discussions • While being one of two or three women dramatically changed this situation • In general, perceived influence increases with the number of women on a board • This indicates that each women perceives that she has more influence when the ratio of women increases
- 19. Critical Mass isimportant for Women on Boards • Numbers make a difference, based on the experiences the women directors described, and we argued that there are at least 3 reasons why; • 1.Multiple women help to break the stereotypes that solo women are subjected to • 2. A critical mass of women helps to change an all- male communication dynamic • 3. Research on influence and conformity in groups indicates that 3 maybe somewhat of a ‘magic number’ in group dynamics, which suggests that having 3 women may be particularly beneficial for creating change.
- 20. The support ofMen on Boards • Until a board has recruited a critical mass of women, enlightened male directors can play an important role in educating the rest of the board on the business case of diversity • Recommending that more women directors be added to the board, and supporting the women directors and making sure that they are fully included and heard
- 21. Malaysian Code ofCorporate Governance 2017: Board Gender Diversity • The board of Large Companies will need to comprise at least 30% women directors. • The MCCG also encourages companies in general to include women participation not only at board level but also in senior management.