Follow the Leader: The Double-Edged Cascading Effect of Board Gender Diversity Practices in Hierarchical Business Groups

Abstract Board gender diversity has extensively generated interest from both researchers and practitioners, as it is not only driven by an economic logic but also a matter of ethics and social justice. However, in hierarchical business groups (BGs) where headquarters (HQs) effectively control the affiliated firms, the latter’s board diversity practices can be attributed to a cascading effect of the former’s governance practices. By adopting an organizational approach to acyclical social hierarchy and drawing on power dependence theory, we examine a sample of hierarchical BGs with HQs located in European OECD countries. We find that affiliates indeed follow their HQs’ board gender diversity practices, even if they have to defy the ethical expectation to enhance board gender diversity by having a low percentage of women directors. This finding suggests that HQs’ influence over their affiliates is a double-edged sword for board gender diversity practices, thereby raising an ethical concern regarding whether affiliates should follow or not their respective HQs’ practices. Moreover, our findings show that HQ’s control, attention, and organizational proximity to the affiliate intensify the cascading effect. Thus, the cascading effect of BG gender diversity practices depends on the power dependence of the affiliate with respect to the HQ.