Causes and Solutions to Small Business Fraud
Doing Good Versus Being Good

Gender Representation on Company Boards of Directors

Should Women have a more prominent role as CFOs?

Women should be given a more prominent role to play in top management especially when it comes to the CFO position. That is the proposition I am putting forth in this blog.

If we take a look at the organizational structure of some businesses, we often see a line of vertical segregation. Vertical segregation exists where men and women hold disproportionate positions in the same field. According to a study by Charles & Grusky, higher ranking positions have often been filled by men instead of women; this has been primarily due to men being regarded as having better authoritative traits and capabilities for such positions. Is it not fair then, that something should be done about this? Women who possess the same skill and strengths as their male colleagues should be given equal opportunity to hold these higher positions.

The 2014 Survey on Occupational Fraud and Abuse by the Association of Certified Fraud Examiners estimates that the typical organization loses 5% of revenues each year to fraud. If applied to the 2013 estimated Gross World Product, this translates to a potential projected global fraud loss of nearly $3.7 trillion. The median loss due the financial statement fraud is $1 million.

In the effort to combat fraud, the role of Chief Financial Officer is especially critical, since the job requires signing off on, and certifying the accuracy of some financial statements for firms that report to the SEC. That makes company CFOs one of the primary lines of defense when it comes to fair and accurate financial reporting and prevention of unethical financial behavior.

But a  2012 study from Ernst and Young found that “15 percent of CFOs indicated they would be willing to commit fraud to win business and 4 percent said they would be willing to intentionally misstate financial performance.” And that's just the CFOs who were willing to admit to such views. A 2014 version of that same study on global fraud found that 7 percent of CFOs said they would be willing to misstate company finances in order to help weather tough economic times. “CFOs are more likely than any other role to justify making changes to assumptions relating to valuations and reserves to meet financial targets,” the study found.

Now comes a new study from researchers at Wake Forest University and the University of North Carolina Wilmington that takes a look at a unique characteristic of a company’s leadership—gender—as a means of determining how ethically a company’s higher-ups behave when it comes to paying taxes and reporting income. The results give food for thought whether women are better equipped to deal with fraud from a preventive perspective than men.

So how does gender factor in? The research shows that, in general, female CFOs were less prone to riskier tax-avoidance measures that could lead to illegal actions, like tax evasion. There could be a couple of reasons for women’s more-ethical behavior when it comes to accurately reporting a company’s finances. For one thing, the paper cites prior research which found that women tend to be more driven by desire for growth and development, while men are generally more driven by the pursuit of money and power—which could lead men to make decisions based strictly on economics rather than other factors, like a sense of fairness or propriety.

But even if female CFOs are more likely to behave morally, having a woman in one of the top positions in a company isn’t enough to ensure that an increased sense of corporate ethics will permeate all of the company’s operations when it comes to reporting, and paying, their taxes. According to the study, “Minority opinions are often overlooked. In the presence of a male-dominated board, a female CFO may be viewed as a symbol or a token and thus may not be able to exert sufficient influence over corporate tax decisions.” So if appointing a woman to the position responsible for overseeing and reporting on financial activity isn’t enough, what would it take?

The study suggests that a company’s board may also need to adjust their gender representation. According to the research, a board needs to have a “critical mass” of female members in order for them to become less likely to commit fraud.

Boards that had a better balance of men and women had fewer SEC violations and were generally more transparent when it came to finances, according to the report. The study finds that in order for a female CFO to be highly effective when it comes to reducing the likelihood of tax evasion, the presence of even one other woman in a high-powered board position could serve to reduce the chances of unethical tax behavior within the company.

In western society, men are rewarded for taking more risk and being competitive while women are conditioned to be more nurturing, kind, and protective. So it is reasonable to say that women would be more ethical in business. But they also face professional and performance pressure that would turn a normally good person into a crook. Being a token member of a business group may even push someone more towards being unethical in the same way a black cop will be pressured to commit abuses to fit in.

The idea that women on boards can help to improve the moral and ethical decision-making of those boards also relates to corporate social responsibility initiatives. The board of directors should reflect the increasing percentage of women in the workplace as well as being 50% of the population.

I believe it is true that Men are from Mars, Women are from Venus. Women seek to understand first before acting while men sometimes shoot from the hip and worry about the consequences later on.

Men have been behind virtually all of the major financial frauds during the past few decades. It’s time to give women a more important role, especially as it pertains to the CFO role.

Blog posted by Dr. Steven Mintz, aka Ethics Sage, on February 26, 2015. Professor Mintz is on the faculty of the Orfalea College of Business at Cal Poly San Luis Obispo. He also blogs at: