Gender-diverse boards reduce information leaks

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Research suggests that gender-diverse boardrooms experience fewer leaks of pre-acquisition information in merger and acquisition (M&A) deals. Dr. Valeriya Vitkova, Senior Lecturer in Corporate Finance at Bayes Business School, found that target firms with greater boardroom gender diversity had fewer leaks of pre-acquisition information than those with male-dominated leadership.

Gender-Diverse Boardrooms: A Key to Reducing Information Leaks in Mergers and Acquisitions

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Published on: February 21, 2022 Description: Power Talk | Gender Diversity and the Board's Role in M&A | Afra Afsharipour | 11th February, 2022.

Power Talk | Gender Diversity and the Board’s Role in M&A

Introduction:

In the world of mergers and acquisitions (M&A), maintaining confidentiality is crucial. However, leaks of pre-acquisition information can occur, leading to frenzied trading activity and undermining trust in the market. Research has now revealed that gender-diverse boardrooms play a significant role in reducing the likelihood of such leaks.

The Study:

Dr. Valeriya Vitkova, a Senior Lecturer in Corporate Finance at Bayes Business School, conducted a study examining the impact of boardroom gender diversity on deal leaks. The research analyzed 12,747 transactions announced since 2009, obtained from Refinitiv’s SDC Platinum database.

Key Findings:

The study revealed that companies with greater boardroom gender diversity experienced fewer leaks of pre-acquisition information compared to those with male-dominated leadership. This suggests that gender diversity positively influences corporate outcomes and strengthens the case for greater female representation at the board level.

Benefits of Gender Diversity in Boardrooms:

Stakeholder Orientation:

Research suggests that women are more stakeholder-oriented than men, considering the interests of employees, customers, and communities. This stakeholder focus may lead to more cautious decision-making and a lower likelihood of engaging in risky behaviors that could result in information leaks.

Creative and Innovative Capabilities:

Boardroom diversity enhances a company’s creative and innovative capabilities. Diverse perspectives and experiences can lead to better problem-solving and more effective strategies, potentially reducing the risk of leaks by improving decision-making processes.

Lower Misconduct Likelihood:

Studies have shown that companies with a higher proportion of female board members are less likely to engage in misconduct. This suggests that gender diversity can foster a culture of integrity and ethical behavior, reducing the likelihood of intentional leaks or breaches of confidentiality.

Protecting Against Information Leaks:

Tone at the Top:

Dr. Vitkova emphasizes the importance of setting the right tone at the top, starting with the senior leadership team. Greater gender diversity in leadership positions can contribute to a culture that values confidentiality and discourages leaks.

Diligence in Non-Disclosure Agreements:

More diligence in drafting non-disclosure agreements (NDAs) and contractual agreements between target, acquirer, and third parties can help prevent leaks. Clear and comprehensive agreements can minimize the risk of confidential information being shared inappropriately.

Penalty Clauses and Lower Purchase Price Clauses:

Adopting penalty clauses, imposing sanctions on advisor fees, and including lower purchase price clauses in transaction engagement terms can act as leak deterrents. These measures incentivize parties to maintain confidentiality and discourage intentional leaks.

Wrapping Up:

The research highlights the importance of gender diversity in boardrooms as a means to reduce information leaks in M&A transactions. By fostering a culture of integrity, stakeholder orientation, and effective decision-making, gender-diverse boards can enhance the credibility and trust in the market. Additionally, implementing robust measures to protect confidential information, such as diligent drafting of agreements and the use of penalty clauses, can further mitigate the risk of leaks.

FAQ’s

1. What is the significance of gender diversity in boardrooms in the context of mergers and acquisitions?

Answer: Research has shown that companies with gender-diverse boardrooms experience fewer leaks of pre-acquisition information compared to those with male-dominated leadership. This suggests that gender diversity positively influences corporate outcomes and strengthens the case for greater female representation at the board level.

2. How does stakeholder orientation influence the likelihood of information leaks?

Answer: Research suggests that women are more stakeholder-oriented than men, considering the interests of employees, customers, and communities. This stakeholder focus may lead to more cautious decision-making and a lower likelihood of engaging in risky behaviors that could result in information leaks.

3. In what ways does boardroom diversity enhance a company’s creative and innovative capabilities?

Answer: Boardroom diversity enhances a company’s creative and innovative capabilities by bringing diverse perspectives and experiences to the table. This can lead to better problem-solving and more effective strategies, potentially reducing the risk of leaks by improving decision-making processes.

4. How can companies protect themselves against information leaks during mergers and acquisitions?

Answer: Companies can protect themselves against information leaks by setting the right tone at the top, starting with the senior leadership team. Greater gender diversity in leadership positions can contribute to a culture that values confidentiality and discourages leaks. Additionally, diligent drafting of non-disclosure agreements (NDAs) and contractual agreements, as well as adopting penalty clauses and lower purchase price clauses, can help prevent leaks.

5. What is the overall impact of gender-diverse boardrooms on the credibility and trust in the market?

Answer: Gender-diverse boardrooms can enhance the credibility and trust in the market by fostering a culture of integrity, stakeholder orientation, and effective decision-making. This can lead to a reduction in information leaks and a more transparent and ethical M&A environment.

Links to additional Resources:

1. https://www.city.ac.uk/ 2. https://www.bayes.city.ac.uk/ 3. https://www.cass.city.ac.uk/.