Monika Schnitzer, a German Professor of Economics at Ludwig-Maximilians-University of Munich, stated in an interview with the Frankfurter Algemeine Zeitung on May 5th: “My assumption is that the manipulation of the diesel engines and this fraud on the customer wouldn’t have happened if women have had a say in the top-level management.”. She also claims that top-level management should include more women because diverse teams would perform better. Taking that into account, her statement can be rated “mostly true”.
Since it’s not possible to go back in time and examine if the VW-scandal wouldn’t have happened if women have had a say in the top management, Schnitzer’s hypothesis can’t be entirely verified or falsified. However, studies on the cause of the VW-scandal, the impact of women on corporate responsibility and fraudulent corporate behaviour as well as on the performance of diverse teams support the economist’s arguments, suggesting that her hypothesis could be correct.
The VW-scandal and its causes
The VW-scandal, also known as “diesel gate”, emerged in 2015 when it was revealed that the German car giant has cheated on federal emissions test through the installation of a so-called “defeat device” on at least eleven million of its vehicles. This way the company fooled regulators and hid emissions so that their cars would appear to meet the requirements.
Despite the primary cause of the emissions scandal at Volkswagen, which appears to have been misfeasance and malfeasance on a corporate-wide scale, researchers believe that the composition of the board itself facilitated a problematic culture at Volkswagen. A group of researchers identified three major problems with the Volkswagen board from a corporate governance standpoint. Firstly, they mention the interest-conflicting nature argue of the dual-class stock held by the dominant shareholding Porsche and Piech families. Secondly, they bring up the presence of a government as a significant shareholder. And thirdly, the typically German “two-tier” board organization (corporate structure system that consists of two separate boards of directors that govern a corporation) around the principle of co-determination.
The authors of the paper conclude that “the failure of oversight at VW can be explained in large part by problems arising from the composition and functioning of the company’s two-tier board”. They believe that the scandal is “a testament to the importance of board composition, theory, and structure in helping to build and maintain a corporate culture that promotes integrity”.
According to the aforementioned research, the composition of the board played a major role in the scandal. This suggests that a different composition of the board might have prevented the scandal. To find out how women might have affected the likelihood of the scandal, a look at reports that evaluate the impact of gender composition on corporate social responsibility is needed.
Impact of women in corporate boards
The relationship between gender composition and corporate social responsibility was examined by a study published in the Journal of Business Ethics. The study comes to the same conclusion as several others do: The number of women on the board shows a positive relationship with the strength ratings for corporate social responsibility. Women would bring a number of strengths to the board like increased sensitivity to corporate social responsibility and participative decision-making-styles.
Another paper from 2014 provides further evidence that gender-based differences in the governance of firms have important implications regarding corporate performance, the management of risk and the value of the firm. For that reason, the authors recommend that firms should intentionally seek women to serve on their boards.
To evaluate women’s impact on fraudulent corporate behaviour, a group of researchers compared 128 firms with violations to a sample of 128 matched control groups. They found that violations are less likely when the board has more women, independent members, and financial experts. Other Studies have also demonstrated that women are more cautious and their business judgments are more ethical. Kaplan, Pany, Samuels, & Zhang found women more likely to report fraudulent financial reporting.
The link between diversity and performance
A BCG study suggests that increasing the diversity of leadership teams leads to more and better innovation and improved financial performance. The research concludes that companies with above-average diversity on their leadership teams report a greater payoff from innovation. Companies with above-average diversity on their management teams also reported innovation revenue that was 19 percent higher compared to companies with below-average leadership diversity.
McKinsey states in their report “Diversity Matters” that companies in the top quartile for racial and ethnic diversity are 35 percent more likely to have financial returns above their respective national industry medians. Companies in the top quartile for gender diversity are 15 percent more likely to have financial returns above their respective national industry medians.
The study “Getting to Equal 2019” by Accenture confirms the importance of diversity. However, it says that while diversity remains a critical building block for innovation a culture of equality is essential to help maximize innovation: “While the impact of diversity factors alone on innovation mindset is significant, it is much higher when combined with a culture of equality. In the most-equal and diverse cultures, innovation mindset is 11 times greater than in the least-equal and diverse cultures. “
Even though Schnitzer’s statement that the VW-scandal wouldn’t have happened with women in the board can’t be rated either true or false for this specific case, studies suggest the positive impact of women on social corporate responsibility and ethic corporate behaviour. Recent research also supports the economist’s claim that diverse teams perform better as diversity corresponds with innovation and improved financial performance. Taking that into consideration, Monika Schnitzer’s claim can be rated “mostly true”.
RESEARCH | ARTICLE : Sonja Wind
Also read our previous factcheck on Dieselgate
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