Why the Old Boys’ Network Still Rules the Boardroom

For decades, the conspicuous absence of women from corporate boardrooms was explained away with a convenient claim: that there simply were not enough qualified female candidates to go around. Apparently, precious few had the C-suite tenure, sector credentials or track record that board recruiters were looking for.

Even though that claim has been roundly debunked in recent years, it’s certainly one factor behind the glacial growth in the number of women sitting around corporate boardroom tables.

Globally, women hold almost 30 per cent of board seats at large- and mid-cap companies, but the pace of growth has slowed, particularly in developed markets. In Canada, latest data shows that women occupy just under one-quarter of seats on boards of directors. In 2023, just over half of boards in Canada did not include any female directors.

If the “empty pipeline” argument doesn’t hold water, what are the real barriers women face in corporate governance? Researchers have been looking at structural issues: narrow search networks, reliance on CEO pipelines and the absence of proactive recruitment efforts. Bhargav Gopal, an assistant professor of economics at Smith School of Business, has now weighed in with evidence suggesting it’s not what you know but who you know that is an important driver of female board membership. His findings point to search frictions, specifically the way corporate boards recruit almost exclusively through incumbent professional networks. 

How was the study designed?

The study was based on California’s landmark board diversity law — Senate Bill 826, enacted in 2018 — that required every publicly-listed company headquartered in the state to have at least one female director by the end of 2019. (The law was ruled unconstitutional in 2022.) The study compared listed companies headquartered in California that had all-male boards in 2017 — the year before SB826 was passed — against comparable listed companies based outside California that also had all-male boards.

The analysis drew on data that tracks board composition, director career histories and professional network connections for most U.S.-listed companies. The data was used to trace whether incoming directors had any prior professional relationship with existing board members or C-suite executives.

What did the study find? 

• Before SB826 was enacted, 61 per cent of incoming male directors had a prior employment connection to the board compared to just 39 per cent of incoming female directors.
• The SB826 quota increased the female share of board positions by 11 percentage points while increasing the share of out-of-network and first-time female directors by three percentage points. 

• After SB826 came into force, the share of all-male boards among affected companies dropped by 24 percentage points within three years. The shift was driven by expanding boards: the legislative quota increased the rate of board expansion by 14 percentage points in 2019, with firms adding seats to accommodate women rather than removing men. 

• Women brought onto boards under the quota were as qualified as their male counterparts. The law had no detectable effect on the average age of boards, the share of directors with MBAs, the share with prior sector experience, or a composite board-specific human capital index. Nor were there meaningful changes in CEO turnover, board independence or litigation risk. What did change with SB826 was connectivity: boards added more first-time directors and more out-of-network candidates.

What do I need to know?

The study is yet more evidence that the main barrier to gender diversity in corporate boardrooms is not a thin talent pool. It is the self-perpetuating logic of incumbent networks that function efficiently for people already inside them while remaining largely invisible to outsiders.

To explain why this comes about, Gopal offered a theoretical model rooted in statistical discrimination (an economic theory in which decision-makers treat people differently based on group characteristics like gender or race, rather than personal merit). According to this model, when a corporate board is composed entirely of men, it has dense professional ties to male candidates that generate precise signals about their productivity and fit. Female candidates lack those connections and are evaluated with far noisier information. Rationally preferring certainty over uncertainty, corporate boards continue to recruit from their established networks. This further enhances the signal precision for men, while female candidates remain informational outsiders. It is a feedback loop masquerading as a meritocracy. 

In a previous study based on California’s board diversity law, Gopal used a similar dataset to examine whether firm performance suffered as a result of greater numbers of women in board positions. He found SB826 did not lead to reductions in operating performance, firm values or shareholder returns. In fact, he found that firms subject to the quota saw an increased return on assets by five percentage points and value metrics by seven per cent.

This latest study suggests a reframing of the board diversity debate is in order. Qualified women are not scarce. They are invisible to recruiting processes that were never designed to find them. The most important structural change is not just setting a target but genuinely expanding the search — commissioning nominations from outside the incumbent network, reducing the weight placed on “prior board connections” as a proxy for quality, and recognizing that a director who doesn’t already know everyone in the room may be exactly the kind of independent thinker a board needs.

Study title: Human Capital, Search Frictions, and All-Male Corporate Boardrooms 

Author: Bhargav Gopal (Smith School of Business, Queen’s University)

Published: Working paper available at SSRN