Gender Diversity in Boardrooms: A Game Changer in Reducing Deal Leaks

The business world is a dynamic and complex ecosystem, where mergers and acquisitions (M&A) play a significant role in shaping the corporate landscape. However, the process of M&A is not without its challenges. One such challenge is the issue of deal leaks, which can have far-reaching consequences for all parties involved. In this article, we delve into the impact of gender diversity in boardrooms on the occurrence and consequences of deal leaks.

Research conducted by Dr. Valeriya Vitkova, a Senior Lecturer in Corporate Finance at Bayes Business School, has shed light on the relationship between gender diversity in boardrooms and deal leak incidence. The study revealed that when a target firm has a critical mass of at least 30 percent representation of female executive board members, deal leak incidence is reduced by nearly two percentage points from 8.6% with male-dominated leadership to 6.7% (Vitkova, 2024). Furthermore, for target firms with 30 percent female executive and non-executive directorship, this reduction is even more significant, at just 3.2%.

The implications of these findings are far-reaching. Deal leaks can result in frenzied trading activity, market abuse, and misconduct. They can also lead to higher bid premiums, as acquirers seek to secure target firms in the face of increased competition. However, the research suggests that greater gender diversity in boardrooms can help mitigate these risks.

One possible explanation for this phenomenon is the risk-averse and less overconfident nature of women, which can improve a board of directors’ monitoring function and make it less likely to accept ‘leaked’ bids. This can lead to lower completion rates for leaked deals, as well as higher premiums paid out to secure target firms.

The research, which used a sample of 12,747 transactions announced since 1 January 2009, obtained from Refinitiv’s SDC Platinum database, adds to a growing body of literature that examines the positive impact of boardroom diversity on corporate outcomes. Previous research suggests that women are more stakeholder-oriented and cautious than men, while boardroom diversity adds to the creative and innovative capabilities of a company (Vitkova, 2024). It is also commonly reported that the likelihood of misconduct is lower with a higher proportion of female board members.

In the context of M&A, deal leaks are not always intentional, but their presence can undermine trust and market credibility. Both parties in a deal can take steps to protect themselves from the threat of leaked information. Dr. Vitkova suggests that better care and compliance are required at the board level. Greater gender diversity in senior leadership positions can be one step towards achieving this, but other measures can also be put in place, such as more diligence in the drafting of non-disclosure agreements (NDAs) and other contractual agreements between target, acquirer, and third parties (Vitkova, 2024). Adopting penalty clauses, imposing sanctions on advisor fees, and adding lower purchase price clauses into transaction engagement terms can also be used as leak deterrents.

In conclusion, the research by Dr. Valeriya Vitkova highlights the importance of gender diversity in boardrooms in reducing deal leaks and their consequences. The findings add to a growing body of literature that underscores the benefits of boardroom diversity in corporate decision-making and outcomes. As the business world continues to grapple with the challenges of M&A, the role of gender diversity in mitigating risks and improving outcomes is an area that warrants further exploration.

References:
Vitkova, V. (2024). Gender diversity in boardrooms and deal leak incidence. Bayes Business School, City University London.

Vitkova, V. (2023). Female-led companies achieved higher rates of deal completion than those led by men during the COVID-19 pandemic. Bayes Business School, City University London.

City University London. (2024). Editors’ notes: Gender-diverse boardrooms reduce leaked deal information, research suggests. Retrieved from https://www.city.ac.uk/news/2024/february/gender-diverse-boardrooms-reduce-leaked-deal-information-research-suggests.

SS&C Intralinks. (2024). Research sponsored by SS&C Intralinks. Retrieved from https://www.intralinks.com/resources/research/gender-diversity-in-boardrooms-reduces-leaked-deal-information.

Refinitiv’s SDC Platinum database. (2024). Sample of 12,747 transactions announced since 1 January 2009. Retrieved from https://www.refinitiv.com/en/products/sdc-platinum.html.