Board diversity brings profits, or not?

As we are all now aware, Julie Anne Genter, the Minister for non-males, thinks it is time for the old white males to resign from Boards and make way for “diversity”.

Absolutely posed diversity box ticking Board. CUHK Business School

So, what does the research say? Does gender diversity on Boards really boost company performance?  Let’s see what a woman (shock horror) has to say on the subject.

Many commentators suggest that gender diversity in the corporate boardroom improves company performance because of the different points of view and experience it offers. However, rigorous, peer-reviewed academic research paints a different picture. Despite the intuitive appeal of the argument that gender diversity on the board improves company performance, research suggests otherwise. 

Results of numerous academic studies of the topic suggest that the presence of more female board members does not much improve — or worsen — a firm’s performance. In this opinion piece, Wharton management professor Katherine Klein summarizes academic research on the topic and discusses the possible reasons and implications for these surprising findings. Klein is also the vice dean of the Wharton Social Impact Initiative.

Do companies with women on the board perform better than companies whose boards are all-male? Many popular press articles and fund managers make this claim, citing studies by consulting firms, information providers and financial institutions, such as McKinsey, Thomson Reuters and Credit Suisse.  […]

[…] But research conducted by consulting firms and financial institutions is not as rigorous as peer-reviewed academic research. Here, I dig into the findings of rigorous, peer-reviewed studies of the relationship between board gender diversity and company performance.

Spoiler alert: Rigorous, peer-reviewed studies suggest that companies do not perform better when they have women on the board. Nor do they perform worse. Depending on which meta-analysis you read, board gender diversity either has a very weak relationship with board performance or no relationship at all.

Wealth of Data on Board Gender Diversity

There have been many rigorous, peer-reviewed studies of board gender diversity. Given global interest in the effects of board gender diversity and the availability of abundant data on board gender composition and firm performance, many researchers have investigated the topic. The research literature includes over 100 studies of firms in 35 countries and five continents (Post and Byron, 2015).

Consider two recent meta-analyses that have been conducted to summarize prior research on the topic. Post and Byron (2015) synthesized the findings from 140 studies of board gender diversity with a combined sample of more than 90,000 firms from more than 30 countries. […]

I wonder what sample size survey formed Julie Anne Genter’s “informed” opinion?

Pletzer, Nikolova, Kedzior, and Voelpel (2015) took a different approach, conducting a meta-analysis of a smaller set of studies — 20 studies that were published in peer-reviewed academic journals and that tested the relationship between board gender diversity and firm financial performance (return on assets, return on equity, and Tobin’s Q).

No Clear Business Case

The results of these two meta-analyses, summarizing numerous rigorous, original peer-reviewed studies, suggest that the relationship between board gender diversity and company performance is either non-exist (effectively zero) or very weakly positive.

Further, there is no evidence available to suggest that the addition, or presence, of women on the board actually causes a change in company performance.

In sum, the research results suggest that there is no business case for — or against — appointing women to corporate boards. Women should be appointed to boards for reasons of gender equality, but not because gender diversity on boards leads to improvements in company performance.

The two meta-analyses reached very similar conclusions, despite the differences in the underlying studies (140 studies vs. 20, etc.). Because meta-analyses provide a statistical summary — a sophisticated averaging — of the results of prior studies, their findings are much more credible than the findings of any single study. The fact that two quite distinctive meta-analyses reached nearly identical conclusions carries a lot of weight.

[…] The average correlation between board gender diversity and firm accounting performance, Post and Byron found, was .047. This suggests that gender diversity on the board explains about two-tenths of 1% of the variance in company performance. The average correlation between board gender diversity and firm market performance (such as stock performance, shareholder returns) was even smaller and was not statistically significant.

Pletzer and his colleagues (2015) found that the average correlation between the percentage of women on the board and firm performance was small (.01) and not statistically significant.

It’s worth noting that even if the meta-analyses revealed a stronger relationship between board gender diversity and firm performance, we couldn’t conclude that board gender diversity causes firm performance. To establish causal effects, you need to conduct a randomized control trial. But, that’s impossible here; we can’t randomly assign board members to companies.

I am sure the Julie Anne Genter would give that a go.

Gender Diversity in the Boardroom

Commentators often suggest that corporate boards that include women will make better decisions than boards that include only men. The argument is that women differ from men in their knowledge, experiences, and values and thus bring novel information and perspectives to the board. They increase the board’s “cognitive variety.” The greater a board’s cognitive variety, the theory goes, the more options it is likely to consider and the more deeply it is likely to debate those options.

We don’t know exactly why this theoretical logic doesn’t hold among corporate boards. It is worth noting that gender diversity in other kinds of work teams is not significantly positively related to performance, either. Despite popular press accounts that suggest that teams high in gender diversity outperform those composed only of men or only of women, rigorous research does not support this conclusion. Meta-analyses linking team gender diversity to team performance (e.g., Bell et al., 2011) reach much the same conclusion as meta-analyses linking board gender diversity to firm performance — that is, the relationship between team gender diversity and team performance is tiny.

What’s going on here? Again, we can’t know for certain why board diversity doesn’t predict company performance, but it seems likely that some of the following factors explain the very weak and mostly non-significant effects:

  • The women named to corporate boards may not in fact differ very much in their values, experiences, and knowledge from the men who already serve on these boards. The argument that gender diversity on the board will improve company performance rests on the assumption that the addition of one or more women to an all-male board will increase the board’s “cognitive variety” because women — the argument goes — differ from men in their values, experiences, and knowledge.

While research indicates that in general male and female adults differ somewhat in their values, experiences, and knowledge (and the differences are not huge), it’s not clear that male and female board members differ all that much in their values, experiences, and knowledge. After all, both male and female board members are likely to be selected for their professional accomplishments, experience, and competence. If male and female board members are fairly similar in their values, experience, and knowledge, the addition of women to an all-male board may not increase the board’s cognitive variety as one might expect at first blush.

  • Even if the women named to corporate boards are different from the men on these boards, they may not speak up in board conversations and they may lack the influence to change the board’s decisions. When individuals are minorities, tokens, or outliers in a group, they often self-censor, holding back from expressing beliefs and opinions that run counter to the beliefs and opinions of the majority of the group. And even when individuals who are minorities, tokens, or outliers speak up, the majority group members may discount their views. If these dynamics occur within corporate boards, boards may not take full advantage of their own cognitive variety.
  • Even if women who are named to corporate boards are different from the men on these boards and even if the women do speak up and influence board decision-making, their influence may not be consistently positive (or consistently negative, for that matter). Some research suggests, for example, that gender-diverse boards make fewer acquisitions than all-male boards (Chen, Crossland and Huang, 2016). But, is this good or bad for firm performance? Companies are likely to benefit from acquisitions in some circumstances and to suffer in other circumstances. If that’s the case, the average effect on firm performance of adding women to the board and thus decreasing risk-taking may be neutral.
  • And, finally, even if the addition of women to corporate boards does improve cognitive variety and decision making, companies may only see benefits to their accounting performance (their sales, profits, return on assets, for example) — not their market returns. Other things being equal, market analysts may, consciously or unconsciously, regard all-male boards as more competent than boards that are more gender-diverse. If so, board gender diversity may be positively related to accounting returns, but not market returns. Indeed, this is what Post and Byron’s meta-analysis showed. Still, the relationship between gender diversity and accounting returns was tiny.

The article goes on for many more words but you get the drift.

And, remember, these studies were only about gender diversity, to comply with Julie Anne Genter’s edict, we would need to look at age diversity and racial diversity, not to mention all the current alphabet diversities.

Surely, rather than meaningless virtue signalling nonsense; the easy, simple answer is: Get the best person for the job?


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WH is a pale, stale, male who does not believe all the doom and gloom climate nonsense so enjoys generating CO2 that the plants need to grow by driving his MG.

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