Research has shown that lack of diversity within a boardroom results in a manila mindset to solving corporate problems (Burgess and Tharenou, 2002) that can lead to group think issues as well as lack of achievement within the company. Over the past decade, homogenous boards have been a contributing factor to spectacular failures and overall poor governance (Brown et al., 2002). A more diverse board results in an increased representation of moral and ethical viewpoints in the discussions prior to making decisions (Arfken et al., 2004). Diversity limits the possibility of a myopic decision-making process that can result in “unhealthy and possibly unethical decisions” (Arfken et al., 2004 p. 185) when the board has similar demographics. Many studies have cited that diversity not only limits the likelihood of myopic decision-making process but also increases the likelihood of positive occurrences such as fresh ideas, better problem solving, improved strategic planning, and additional accountability (Arfken et al., 2004). Diversity in the boardroom allows members to make better decisions as a more complete picture of the issues at hand are typically discussed (Adams and Flynn, 2005). Adams and Ferreira’s (2009) research indicates that diverse boards are more likely to hold CEOs responsible for poor stock price performance and that board compensation is typically equity-based, implying that the board is more aligned with shareholder interests. These findings further the idea that having women on boards can add value to a company. Overall, gender-diverse boards have increased levels of boardroom involvement and corporate oversight (Adams and Ferreira, 2009); boards with a greater female presence have higher levels of meeting attendance. The primary way in which boards operate and conduct business is through meetings and thus, attendance is a crucial factor of a successful board (Adams and Ferreira, 2009). These authors note that women were less likely to have attendance problems and that having females on boards results in better attendance by male directors. Clearly, the female influence in this area is quite important; increasing attendance should result in better boardroom discussion and higher levels of effectiveness. An increased membership of female directors positively associated enhanced corporate reputation (Bear et al., 2010). Bernardi et al. also found that corporations with higher percentages of women on their boards were more likely to be named as one of the ‘100 best companies to work for’ (2006), one of the ‘most ethical companies’ (2009), and a higher number of female executive-level managers (2004).

The individuals an organization attracts, hires, and retains influence the organization’s ethical climate (Schneider, 1987). Harrison (1992) indicates that factors essential to economic success include a sense of community (i.e. a trusting and caring environment - Reynolds, 2003) and a robust ethical system. Employees are more likely to support a corporation’s values when the corporation demonstrates a commitment to the welfare of its community (Barnett and Schubert, 2002). Young people are attracted to a company’s social record (Goodpaster, 1991); for example, Bernardi and Guptill (2008) found that women from eight countries who were approaching graduation were more concerned about a corporation’s reputation within its community than were their male counterparts. Consequently, as Arnold et al. (1997) suggest, the foundation of an ethical organization culminates in an environment that nurtures ethical behavior. Bernardi and Arnold (1997) and Akaah (1989) indicate a difference between males’ and females’ moral reasoning and development implying that the way men and women handle ethical decision-making differs. Williams (2003) makes clear the correlation between increased levels of female directors and a company’s involvement in corporate social responsibility activities. The more concerned the firm is with issues of corporate responsibility, the less likely the firm will take actions that are considered unethical or do not promote the overall wellbeing of the firm and the surrounding environment. In a corporate landscape where corruption is rampant, it is essential that corporations work to ensure their culture is ethical and women are able to enhance this important aspect (McDaniel et al., 2001). Bernardi et al. found that corporations with higher percentages of women on their boards were more likely to be on EM’s ‘most ethical companies’ list (2009) and engage in activities demonstrating corporate social responsibility (2010).

While ethical orientation is concerned with the internal decisions that an organization makes, transparency focuses on whether stakeholders have access to this information. An organization’s reputation rests on its stakeholders trust (Larkin, 2003), which directly relates to the information that is available about the organization (i.e., the transparency of the company). Public disclosure of information has increased in an effort to increase trust in organizations because trust at all levels is essential to a corporation’s legitimacy (The Economist, 2000). Following instances such as Enron, the Big-Four firms have all indicated a commitment to ethics and transparent reporting (Lehman, 1992). Deloitte and Touche initiated a challenge to restore the profession’s public trust (Parrett, 2004) and both KPMG (2003) and PricewaterhouseCoopers (2003) call for increased transparency and integrity in corporate reporting. Organizations that are not forthcoming with information tend to be hiding essential facts from stakeholders; this process leads to the possibility of corporate scandal. The lack of transparency and audit failure contributed to the Enron debacle - one of the most discussed financial scandals. Reinstein and McMillan (2004) show that Enron’s collapse was not a perfect storm (i.e., a happenstance of rare events that had devastating effects). Rather, the audit team from Andersen ignored or missed red flags that would have indicated problems with Enron’s financial heath (Reinstein and McMillan, 2004). In this case, understanding the organization’s operations would have lead stakeholders to question Enron’s profits and financial statements.

Businesses operate with the objective to earn a profit and in turn increase shareholder value. Corporate managers, and those who are interested in positive governance, believe that there is a correlation between board diversity and shareholder value (Carter et al., 2003). Furthermore, investors are willing to pay more for firms with effective corporate governance (Smalhout, 2003). Jackson (2004) found that most individuals consider reputation in their investment decisions; research also suggests that stock performance associates with corporate reputation (Miles and Covin, 2000; Vergin and Qoronfleh, 1998; Sparks, 1998; Sims, 1994). Many corporations recognize that increasing shareholder value should occur in an ethical manner, but the implementation of this process can be difficult. Corporations are under increasing pressure to act in a socially responsible manner while still attaining high profit levels. Corporate social responsibility is the implementation of policies that recognize the relationship among business ethics, community investment, governance and many other aspects of business (Tsoutsoura, 2004; Bernardi et al., 2006).

Prior research demonstrated the benefits that having women on boards can bring to an organization, but many question the ability of organizations to be socially responsible while still meeting shareholder expectations. Some feel that social responsibility results in increased cost pressures on organizations, which can affect the bottom line. However, corporations that engage in socially responsible practices can more easily obtain capital as their reputation of being less risky (Tsoursoura, 2004). Together, these aspects help improve the public’s view of the firm thus increasing profitability. Tsoursoura also found that financial performance and corporate social responsibility were positively associated. Most importantly, Tsoursoura found that the industries with the lowest ratings for social responsibility include mining and construction, the same sectors with the lowest number of women on boards (GovernanceMetrics International, 2010). These findings show that having women on boards does in fact positively affect the social responsibility behaviors of an organization. Bear et al. (2010) found that the number of female directors positively associated with measures of corporate reputation. Bernardi et al. (2006) also found that an increased proportion of female representation on boards associated with the corporation’s inclusion on the ‘100 Best Companies to Work For’ list. Additionally, corporations that value diversity have proven to be more competitive in the overall business setting (McDaniel et al, 2001). Farrell and Hersch (2005) conducted research on the effect that women board members have on a corporation’s common stock performance. They found that, while adding women to the board positively associated with return on assets, the market failed to react to adding women to a board. This information supports the idea that having women on boards has a direct impact on the bottom-line profits of an organization, but at this point fails to influence investor opinion. 2.6

The current sample includes the 2010 Fortune 500 corporations of which 92 (408) corporations appear (do not appear) on CRM’s list (Table 1). The sample also includes the 46 (454) corporations that appear (do not appear) on EM’s 2010 list (Table 2). Appendix A provides the methodology for CRM’s list. Appendix B provides the methodology for EM’s list. We determined the size and gender composition of the corporate boards of directors by referring to the companies’ actual 2010 annual reports or from data included in the Mergent Online database.

CRM’s list (Appendix A) took into consideration both the transparency and the level of social responsibility of an organization. It is important to note that our basis for considering an organization as transparent lies with the fact that the magazine penalized corporations for not disclosing information relating to social responsibility. EM’s list (Appendix B) acknowledges corporations for being ethical and following compliance measures through positive leadership. We tested the research question relating to the organization’s financial return using a rate of return for the period between January 1, 2010 and December 31, 2010. We used historic stock prices to determine the price per share of each organization at the earliest available stock price in 2010 in relation to the latest available stock price in 2010 at the close of the trading day. In order to determine the percentage change of the stock price for the given year, we subtracted the beginning (January 1) stock price from the ending (December 31) stock price, which we divided by the beginning stock price.

While our initial analysis included all Fortune 500 corporations, 51 of these corporations are not publicly listed; of the 51 corporations that were not publicly traded, three of them were on CRM’s list. For the 89 publicly traded corporations that appear on CRM’s list, there were 195 female directors and 1057 total directors (18.4 percent). The 89 corporations on CRM’s list make up 19.8 percent of the 449 publicly traded companies in the Fortune 500. Our data indicate that of the 89 corporations on CRM’s list: 1.1 percent had no female directors; 21.3 percent had one female director; and, 77.5 percent had multiple female directors. We compared these percentages to those for the remaining 406 corporations that have 586 female directors and 3,904 total directors (15.0 percent). The data for these corporations indicate that: 14.4 percent had no female directors; 32.2 percent had one female director; and, 55.3 percent had multiple female directors.

Three of the 46 corporations that appear on EM’s list are not publicly traded. For the 43 publicly traded corporations that appear on EM’s list, there are 93 female directors and 491 total directors (18.9 percent). Our data indicate that of those: 2.3 percent had no female directors; 23.3 percent had one female director; and, 74.4 percent had multiple female directors. We compared these percentages to those for the remaining 406 corporations that have 688 female directors and 4,470 total directors (15.4 percent). The data for these corporations indicate that: 12.8 percent had no female directors; 30.8 percent had one female director; and, 56.4 percent had multiple female directors.

4. Analyses and Findings

For this part of the analysis, we used the data from 449 of the Fortune 500 companies that had publicly listed performance data - the other 51 companies were not publicly listed. In our analysis, we group corporations by whether or not they appear on a specific list and by the number of female board members: no female board members, one female board member, and multiple female board members. In our examination of the data, we use contingency analysis, as we believe it visually demonstrates our findings with respect to listing by either CRM or EM, board gender diversity and common stock performance.

This part of the analysis tests for an association between listing by either CRM or EM and gender. For the 89 corporations included on CRM’s list, there was one corporation (1.1 percent) with no female directors, 19 corporations (21.4 percent) with one female director and 69 corporations (77.5 percent) with multiple female directors. For the 360 corporations that were not included on CRM’s list, there were 52 corporations (14.5 percent) with no female directors, 126 corporations (32.2 percent) with one female director and 192 corporations (53.3 percent) with multiple female directors. While the corporations not listed by CRM had a higher proportion of corporations with no female directors or only one female director (14.5 and 32.2 percent respectively) than the corporations listed by CRM (1.1 and 21.4 percent respectively), the reverse is true for corporations with multiple female directors (53.3 versus 77.5 percent respectively). Panel A of Table 3 shows the actual and expected number of female directors for each of group or corporations.3 Our analysis indicates that all treatments are not proportionally represented (χ2 statistic = 20.72, p < 0.000). The most significant contributors to this difference were the corporations listed by CRM. Corporations on CRM’s list had higher proportion of corporations with multiple female directors, which supports our first research hypothesis. For the 43 corporations included on EM’s list, there was one corporation (2.3 percent) with no female directors, 10 corporations (23.3 percent) with one female director and 32 corporations (74.4 percent) with multiple female directors. For the 406 corporations that were not included on EM’s list, there were 52 corporations (12.8 percent) with no female directors, 125 corporations (30.8 percent) with one female director and 229 corporations (56.4 percent) with multiple female directors. While the corporations not listed by EM had a higher proportion of corporations with no female directors or only one female director (12.8 and 30.8 percent respectively) than the corporations listed by EM (2.3 and 23.3 percent respectively), the reverse is true for corporations with multiple female directors (56.4 versus 74.4 percent respectively). Panel B of Table 3 shows the actual and expected number of female directors for each of group or corporations. Our analysis indicates that all treatments are not proportionally represented (χ2 statistic = 6.52, p = 0.045). The most significant contributors to this difference were the corporations listed by EM. Corporations on EM’s list had higher proportion of corporations with multiple female directors, which supports our second research hypothesis. 4.3

Panel A: Corporate Responsibility Magazine’s Criteria for Identifying “100 Best Corporate Citizens” “100 Best Corporate Citizens” methodology uses publicly available information to determine the world’s top corporate responsibility ranking. CR Magazine contracts with a third party research organization to collect data and develop initial rankings. Once all the necessary information was collected, the companies were scored relative to their industry peers 324 data elements in 7 categories. Data Category Environment Climate Change Human Rights Employee Relations Philanthropy Financial Governance

# Data Elements

2010 Weighting Percent 19.5% 16.5% 16.0% 19.5% 9.0% 12.5% 7.0%

The companies included in the analysis were defined as the 2010 Russell 1000. The rankings are determined from the ordinal list of companies that results from applying the Corporate Citizenship Criteria detailed above. Panel B: Explanation of Corporate Responsibility Magazine’s Process CR Magazine’s researchers and editors employed a detailed process. The separate and sequential analyses conducted were: STEP 1 Selection of and Contracting with a Research Firm STEP 2 Determination of Evaluation Criteria STEP 3 Data Collection STEP 4 Data Sources STEP 5 Undisclosed Data STEP 6 Data Validation STEP 7 Review and Publication Where: Steps 1-2 determined that way that analysis would be completed and includes getting input and opinions from NGOs, academics, investment analysts, etc. Step 3-6 focus on data collection using only publicly available information (company websites, 10-Ks, government datasets, etc.). Undisclosed information negatively influences the company’s ranking. Data validation is done by the research team reviewing their work and by providing the opportunity for companies to correct factual inaccuracies. Step 7 allows companies two opportunities to review the datasets determined by the research team (not their rankings), after this period, the information and rankings are provided to CR. From Corporate Responsibility Magazine (2011)* *The 2011 methodology details were used as 2010 details were unavailable