The Influence of Female Directors on Product Recall Decisions
Having more women on the board leads to companies being more proactive about minor defects and more responsive to major defects in their products.
As corporate governance structures continue to evolve, the influence of diverse boards on operational decisions is becoming increasingly important to understand. Among the factors influencing board diversity, the role of female directors has received significant attention including mixed evidence about the effectiveness of board quotas on shareholder value. Yet, there is a lack of research examining the impact of female directors on specific operational decisions related to product quality problems, such as product recall decisions. Studies suggest that female directors tend to be more compliant in their decision-making, and that women overall
This study theorizes that the impact of appointing additional female directors on product recalls is contingent upon the severity of the recall, as defined by FDA classifications related to the extent a product is associated with life-threatening defects. Therefore, the study hypothesizes that boards with greater female representation are likely to make more cautious and inclusive decisions, leading to 1) an increase in low-severity recalls, and 2) a more rapid response to high-severity recalls.
The researchers collected and analyzed data on board composition and recall decisions to establish a correlation between the presence of female directors and the frequency and timeliness of product recalls. The researchers also took into account the quality of the product, the severity that led to the recall, the firm’s performance, and the number of male directors. This study also discusses how the influence of female directors might extend beyond product recalls to other operational decisions that have societal implications.
- Number of Recalls: Having more women on a firm’s board (FBR) is linked with more low-severity recalls (class 3).
- A one standard deviation increase in FBR is associated with a 30% increase in low-severity recalls, or three more recalls of this class per firm across the study period.
- Time-to-Recall: Having more women on boards is associated with a quicker response to high-severity defects (class 1).
- A one standard deviation increase in FBR corresponds to an acceleration of the recall process by 16 days for the most severe class of recalls.
- At least two female directors are required to influence how quickly firms recall the most severe, life-threatening products, based on research that suggests that one female voice may be inadequate to shape decisions that can be risky for the firm.
- The addition of female directors may help firms more comprehensively integrate societal implications into operational decision-making process.
- Decisions about inventory, facility location, and capacity management could all be influenced by the perspective of female directors, who may prioritize considerations beyond cost optimization, like safety and ethical labor practices.
This study suggests that having more women on the board leads to companies being more proactive about minor defects and quicker to respond to major defects in their products. However, it was noted that at least two female directors are needed to influence the speed at which the most severe, life-threatening products are recalled.
This study collected data from publicly traded medical product firms regulated by the FDA that manufacture diagnostic biologics, pharmaceuticals, medical devices, and radiation-emitting products. Data was gathered through two methods: the count of recalls was collected via a Freedom of Information (FOIA) request, and the timing of recalls was provided by senior FDA leaders. Information on the board composition of firms was sourced from Institutional Shareholder Services (ISS). Financial control variables were gathered from Compustat.
In total, the sample comprised 4,271 medical product recalls from 2002 to 2013 across all 92 publicly traded medical product firms that existed during those years.
This study measured the recall count (number of recalls initiated by the firm) and the time-to-recall (the number of days between the firm was first made aware of a defect and when the recall was initiated), as dependent variables.
The independent variable was Female Board Representation (FBR), or the percentage of board members who are female at each firm’s annual shareholder meeting, which ranged from 0% to 45% across the sample, with an average of 14%.
The study controlled for eight variables, including year, sales, number of products, R&D intensity, recall history, board tenure, board independence from non-employee board members, CEO-Chair separation.
The dependent variables were analyzed by different regression models:
- Recall count: by a negative binomial regression model was used for estimation.
- Time-to-recall: a natural log of time with an Ordinary Least Squares (OLS) regression model for prediction.
The data includes repeated measures across time for the same firm and used a fixed effects (FE) demeaning regression approach to reduce the time-invariant omitted variable bias. The analysis used a fixed effects model conducted within firms, where the regression coefficients represented the effect of increasing Female Board Representation (FBR) within a firm over time on changes in future recall measures within the same firm over time in order to examine how changes in female board composition within a firm influenced that firm's subsequent recall decisions.