Insights

Banks with more female directors on board are less fraudulent

Looking for another reason to employ more women on the board? Look no further. New research from Cass Business School claims that banks with female directors have saved around $7.84 million a year since 2008 – or close to $100 million.

Why? Well, it appears that banks with more women on their boards commit less fraud. Or rather, one female director has minimal impact – it’s hard for one person to change a culture – but three are really powerful.

The impact is even stronger if there are female directors and women in executive positions throughout the organisation.

Barbara Casu, professor of banking and finance at Cass Business School, compared the gender diversity data at board and leadership levels at large European banks against the records of fines imposed by the US government since the financial crisis of 2008.

In choosing to examine sanctions by a foreign government, Casu avoided the issue of lobbying – which could skew a penalty. She also claims that the available data is superb, and, with total fines of around $500 billion, for infractions ranging from mis-selling to accounting issues and money laundering, there was a lot of material to research.

Distinguishing between civil and criminal fines, which are larger as, by their nature, they imply unethical behaviour, Casu even found that banks with more women directors receive fewer criminal fines.

But while the data proves the correlation, it can’t quite explain why having women on the board has such an impact. Casu puts forward a few suggestions. Women may be more ethical. From an early age they are encouraged to be caring and accommodating. They are likely more risk-averse, so would speak out against behaviours or business practices they perceive as dangerous. And, finally, they often get punished more harshly than men for the same crime – the gender punishment gap –implying an element of self-preservation.

Of course, not all men are untrustworthy. But the banking industry is dominated by men, so it is interesting that Casu has found this effect. In fact, an analysis of other types of board diversities, such as age, ethnicity and internalisation, found their impact on misconduct was insignificant.

So, the answer is clear. It makes financial sense to appoint women directors to boards of banks… but if the chairman or chief executive remain resistant, what does that say about an organisation’s culture?