Push for women on boards flawed
It isn’t proven that gender diversity brings benefits, writes Alex Davis
In the past five years a drumbeat has echoed through business, a mantra if you like, that companies perform better with women at the board table. It intuitively appeals to our sense of fairmindedness and equality. It has become accepted wisdom: organisations as august as McKinsey, Harvard and, locally, the Institute of Directors have led the charge in promoting gender diversity.
Unfortunately, it’s also incorrect. No empirical evidence supports this thesis.
In 2015, two meta studies of board gender diversity were published*.
Together they synthesised more than 140 separate studies with a combined sample of 90,000-plus firms from more than 30 countries. They found that: “the relationship between board gender diversity and company performance is either non-existent (effectively zero) or very weakly positive”.
The conclusion is simple: “there is no evidence available to suggest that the addition, or presence, of women on the board causes a change in company performance”.
The “very weak” positive correlation observed was tiny: about two-tenths of 1 per cent (0.2 per cent) of the variance in company performance and only in respect of accounting performance. There was no statistically significant correlation with market performance (such as stock performance or shareholder returns).
Meta-analyses are important because the statistical averaging of results of prior studies means such findings are significantly more credible than one study. The fact the two meta-analyses were independent and used different Diversity of opinions and skills on a board is good for a company; assuming such diversity occurs because of the directors’ gender isn’t. techniques but still reached an effectively identical conclusion reinforced the findings.
Further it is important to note that even if the meta-analyses had revealed a stronger relationship between gender diversity on boards and company performance (which they did not), this would be a correlative not causative effect. Board diversity proponents have fallen for the fallacy cum hoc ergo propter hoc (they mistake correlation for cause).
It is not possible to conclude board gender diversity causes firm performance. To establish a causal relationship between women on boards and company performance would require a randomised control trial of companies in real world markets with differing genders on their boards.
Such a study is impossible, for a variety of reasons, not the least of which is that it would require companies to accept randomly assigned board members.
The results of these 140 studies are troubling given that in recent years there has been a substantial push to get more women onto boards. Companies such as Spark, Air New Zealand and GSK NZ have loudly trumpeted board gender diversity. The Institute of Directors has berated organisations’ lack of gender diversity.
Felicity Caird, manager of the institute’s governance leadership centre, said companies should “aim to achieve a 30 to 50 per cent mix of female directors” and lamented the relative lack of progress among NZX listed companies. The Government has (predictably) gone further. It has a stated target to reach gender equality on public boards. Forty three per cent of board positions are now occupied by women. There have been numerous reports of otherwise qualified male candidates being “passed over” for public board roles due to a preference for females.
Opposition to such discrimination has inevitably been met with the “better performance” rationale. Unfortunately, as we have seen, this justification lacks empirical support. For the Government and society to promote discriminatory policies for which there is no empirical foundation is concerning.
In the absence of evidence that promoting women to boards lifts company performance, gender activists often resort to a related argument: Teams (and boards) that include both men and women somehow make better decisions than boards with only one gender.
The theory is that women differ from men in their knowledge, experiences and values, bring novel information and perspectives to the board and increase its “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. Regrettably, that is incorrect.
Encouraging a diversity of opinions and skills on a board is good for a company; assuming such diversity occurs because of the directors’ gender isn’t.
The Government and other institutions should not promote one board candidate over another due to gender other than capability (as defined by ability to add value to the company). There is no scientific or moral justification to do so.
*Post and Byron (2015) Women on Boards and Firm Financial Performance: A MetaAnalysis, Academy of Management Journal.
Pletzer, Nikolova, Kedzior, and Voelpel (2015) Does Gender Matter? Female Representation on Corporate Boards and Firm Financial Performance — A MetaAnalysis.