Understanding the role of gender diversity in ESG misconduct. The moderating effect of gender equality policies

Purpose This paper aims to investigate whether gender-diverse boards and top management teams (TMTs) reduce undesirable environmental social governance (ESG) behavior and whether a critical mass of women in leadership is necessary to influence this outcome. In addition, the authors study whether differences in the levels of national commitment to gender-equality policies affect the effectiveness of gender-diverse boards and management in curbing ESG misconduct. Design/methodology/approach This study examines the role of women directors and women executives in ESG misconduct using a European sample of analysis of 2,994 firm-year observations from 2015 to 2020. Findings The authors find that gender diversity effectively prevents ESG misconduct only in countries with strong national policies supporting gender equality. Specifically, women directors and executives significantly reduce ESG misconduct in these countries, demonstrating the complementary role of gender diversity and national equality policies. In addition, female chief executive officers are more likely to curb negative ESG practices in firms operating within gender-equal corporate environments, noting that female chief executive officers are not effective in reducing irresponsible ESG behavior when they are not supported by a critical mass of women directors or executives. Practical implications This paper finds novel evidence that the influence of female representation on ESG misconduct is not linear but conditional on the level of female proportion; women in the minority (usually under 3) can scarcely influence group decisions because their specific female attributes are only evident when the visibility and legitimacy of the female group are high enough. Firms led by female chief executive officers seem to reduce ESG misconduct, especially when their chief suites are above a critical threshold. But queen bee female chief executive officers are not effective in reducing adverse ESG activity if their boards and TMTs are not gender diverse; the joint effect of women in different hierarchical positions contributes to decreasing ESG failures. Social implications These findings are useful for policymakers because they show that although there is growing social concern about business gender equality and increasing regulatory efforts through soft/hard gender quotas, stakeholders will not completely benefit from firm gender diversity without national support for gender equality. Originality/value This study contributes to the sustainable development literature by examining the direct effects of gender diversity at multiple levels of a firm’s hierarchy (chief suite, board, TMTs), as well as addressing the gap between firm gender diversity and national gender equality policies as mechanisms to reduce ESG misconduct. It also explores the queen bee phenomenon, noting that female leaders in non-diverse organizations often adapt their leadership style to align with masculine corporate cultures.