Gender Diverse Boards May Reduce Corporate Fraud Risk

Gender Diverse Boards May Reduce Corporate Fraud Risk

The collapse of SVB Financial Group earlier this year catapulted boardroom diversity back onto the agenda, generating headlines on the front pages and prompting viral hot take tweets, writes BCL’s Anoushka Warlow and Suzanne Gallagher.

The bank’s demise was met with inferences from certain quarters that the failure of the financial institution may in part be attributed to its focus on diversity and inclusion, with one commentator from the Wall Street Journal suggesting “the company may have been distracted by diversity demands.”[1]

The Economic Crime and Corporate Transparency Bill, currently navigating its way through the Houses of Parliament, proposes reforms that will have significant implications for how corporate wrongdoing is investigated and prosecuted in the U.K.

Included in the bill is a new “failure to prevent fraud” offense that will seek to hold organizations criminally liable where they fail to have in place reasonable procedures to prevent fraud.

With the bill to be considered again once the House of Commons returns from summer recess, it is possible that it will receive royal assent by the time the House rises for Christmas. We may therefore see the new corporate criminal offense of failing to prevent fraud as law in force sooner rather than later.

Coupled with an increased focus on fraud prevention by enforcement authorities in the U.K., the implantation of this new offense is indicative of a shift in the expectations placed on leadership teams when it comes to mitigating the fraud risk within their organization.

With that in mind, and as set out further below, ignoring the impact of diversity at senior management and board level — and the organization’s culture and values as a whole — may be a mistake.

Reducing the Fraud Risk: What the Research Says

Research suggests that firms motivated by achieving diversity are more likely to succeed than fail, in more ways than one.

An area that has received particular attention from academics is the relationship between women’s representation on corporate boards and fraud, with numerous studies concluding that more gender diverse boards can help reduce the fraud risk.

A 2016 article published in the Australian Journal of Management detailed an empirical analysis of 128 publicly listed companies in Australia and concluded that an increase in women’s representation on company boards is associated with a decreased probability of fraud.[2]

A more recent study focusing on Israel, published in the Michigan Journal of Gender & Law, compounded these findings. The research examined 660 public corporations listed on the Tel Aviv Stock Exchange between 2005 and 2017. During that period, the corporations or their top executives were involved in a total of 149 criminal or administrative violations of the law.

The analysis showed that organizations with a higher representation of women on the board were significantly less likely to be involved in corporate wrongdoing.[3]

Closer to home, recent research on the European banking sector by Professor Barbara Casu of Bayes Business school in London, published in the Journal of Corporate Finance, demonstrated that banks with more female directors faced lower and less frequent fines for misconduct, saving those institutions $7.84 million a year on average.[4]

A December 2022 research paper by Dr. Jannine Poletti-Hughes at the University of Liverpool, published in the Journal of Risk and Financial Management, focused on the benefits brought by independent nonexecutive female directors, in both boards of directors and audit committees, finding that they play an important role in lowering financial fraud.[5]

Poletti-Hughes concluded that independent female directors moderate significantly the increased probability of fraud elicited by CEOs, especially in firms where CEOs are more powerful.

Whatever the reasoning that sits behind these findings may be, the key question for corporate entities and their advisers considering this body of research is: Can ensuring the right equilibrium at senior level help in the fight against fraud?

Fraud Prevention: The Brave New World

The Economic Crime and Corporate Transparency Bill proposes the introduction of a new “failure to prevent fraud” offense.

This new offense recasts how corporations can be held liable for fraud, criminalizing companies that fail to prevent fraud committed by a person associated with the company for the benefit of the company.

A company will have a defense if it can show that it had reasonable procedures in place designed to prevent fraud.

The “Reasonable Procedures” Defense

At present, corporations considering the implications of this reform are, to a certain extent, feeling their way in the dark.

The new offense is modeled on existing offenses of failing to prevent bribery and failing to prevent the facilitation of tax evasion that, despite having been on the statute books for some time, have produced little to no judicial authority on how the “reasonable procedures” defense works in practice and what types of procedures might — or might not — be regarded as reasonable.

Associated government guidance produced at the time that the failure to prevent the facilitation of tax evasion offense was first introduced emphasized the proportionality of risk-based prevention procedures.[6]

Emphasis was also placed on not only written policies and procedures, but also “a top-level commitment to preventing the involvement of those acting on the relevant body’s behalf in the criminal facilitation of tax evasion” and “a commitment to compliance over profit or bonuses.”

When it comes to preventing tax evasion, top level management are expected to “foster a culture within the relevant body in which activity intended to facilitate tax evasion is never acceptable,” according to the guidance.

Guidance will be published in relation to the new failure to prevent fraud offense in due course, however, it is likely that any guidance will be high-level and principle based.

Given the wide scope of the offense and its application to companies in different sectors with different risk profiles, it is difficult to see how any one guidance document could serve to provide a clear framework for what all organizations might reasonably be expected to do to prevent fraud.

It will, therefore, be largely down to leadership teams to tailor the approach to their organization, assessing the types of measures that can be taken and the controls necessary to meet the requirements of the new offense, and to implement those procedures.

Identification Doctrine

Another proposal introduced as part of the Economic Crime and Corporate Transparency Bill is the reform of the identification principle to widen the category of individuals who could be identified with the commercial organizing for the purpose of attributing criminal liability.

Under the reforms, if an organization’s senior managers engaged in, consented to or connived in an economic crime offense, such as fraud, then the company could be held liable for their actions — a significant extension to the previous approach of only holding companies liable for the criminal conduct of its “directing minds.”

Further Impetus to Consider Diversity and Culture?

Over the past decade, we have seen a drive toward increasing women’s participation at senior management level.

Research suggests increased female participation on boards can have a significant positive effect on financial performance, innovation and the quality of financial reporting.[7]

In circumstances where research also demonstrates that greater gender diversity can reduce fraud risk, it seems sensible that conversations surrounding the makeup of an organizations’ senior management, and the implementation of reasonable procedures to prevent fraud in anticipation of the introduction of the new corporate offense, should also include discussions on the makeup and diversity of the corporate entities’ leadership team.

Reforms tabled in the Economic Crime and Corporate Transparency Bill have set out expectations for the leadership teams in the U.K.’s biggest corporations: Organizations should foster a culture that ensures fraud for financial gain is never acceptable and take ownership over the creation and implementation of preventative procedures.

Given the direction of travel, in both the research summarized above and in the law reforms making their way through Parliament, there may be a further impetus toward achieving gender parity, and increased diversity, in boardrooms across the U.K.




[2] Women in the boardroom and fraud: Evidence from Australia,

[3] Elizabeth Holmes Is the Exception: More Women on Boards Lead to Less Corporate Wrongdoing,

[4] Gender Diversity and Bank Misconduct, Diversity and BankMisconduct_final.pdf.

[5] Financial Fraud, Independent Female Directors and CEO Power,


[7] Newcastle University, “Three or more women directors on company boards results in significant improvement of company performance,””There is an unequivocal highly significant positive effect on financial performance when 3+ women are appointed to the board of FTSE 100 companies,” “3+ women executives can change boardroom dynamics substantially, creating environments where innovative ideas can increase firm innovation.” “Gender diverse boards commit fewer financial reporting mistakes, engage less frequently in fraud schemes and improve the informativeness of data for stockholders and quality of corporate governance.”

Anoushka Warlow is a partner specialising in corporate and financial crime, principally cases involving international bribery and corruption, commercial fraud, and money laundering. Anoushka advises both individual and corporate clients and has been involved in a number of high-profile domestic and international investigations conducted by enforcement agencies including the SFO and the U.S Department of Justice.

Suzanne Gallagher is an associate with significant experience advising on complex corporate crime and regulatory investigations. Her clients include high-profile corporates and senior officers implicated in criminal investigations as suspects and where they are assisting regulatory authorities as witnesses. She also has experience of corporate self-reporting.