How much does gender balance on boards matter?

Not as much as you might think, according to research

For all his grand talk of facilitating social change and gender parity, Justin Trudeau has become much more concerned with virtue signalling than with finding solutions.

Invoking the now-familiar “business case” for increasing gender diversity in the workplace, the prime minister told a World Economic Forum audience recently that governments and large companies around the world should follow Canada’s lead, “not just because it’s the right thing to do or the nice thing to do, but because it’s the smart thing to do.” The research, Trudeau was quick to assert, proves this.

If only progress were made from great ambitions alone. In this case, the great ambition is the government’s most recent attempt to reengineer Canada’s private sector: the relatively uncontroversial but potentially game-changing Bill C-25. Looking like it will soon bounce back from the Senate to the House of Commons for final passage, Bill C-25 will, among other things, amend the Canada Business Corporations Act to include a greater emphasis on diversity in the senior ranks of corporations.

While the exact meaning of “diversity” is not specified in the bill, it’s probably easy to surmise what Trudeau and the Liberals have in mind. And besides, what really matters is that the legislation be aspirational.

The real problem here is not so much Bill C-25 itself — which is a noble (albeit clumsy and top-down) attempt to address a challenging and complex topic — but rather the government’s tendency to rely on misleading research in promoting it. Despite Trudeau’s claim that there is a clear link between corporate board diversity and firm performance, the actual evidence paints a much more complicated picture. It is a picture the Liberals ignore to the detriment of positive progress on this file.

While there is certainly ample research showing a positive relationship between, for instance, gender diversity on corporate boards and the tendency of firms to improve their “social performance,” a group of researchers in Europe suggested recently that, in certain contexts, achieving this does not require a “critical mass of female directors,” and that the same results can be achieved with the introduction of only one single woman. In addition to this, there is also empirical evidence suggesting that gender diversity has little influence on the market performance of firms.

And, perhaps most alarmingly, a group of researchers in Scandinavia — a world leader in gender diversity on corporate boards — has highlighted how, in some cases, forcing gender diversity quotas on companies can have the perverse effect of reducing board diversity in other areas, such as cultural, socio-economic and demographic. These are, at best, mixed findings, and they highlight the extent to which Trudeau’s claims about the “research” are, at best, misleading. Again, it’s those pesky details.

Daniel Ferreira, a researcher at the London School of Economics and an expert on board diversity, has argued strongly against the tendency of politicians to make a business case for gender diversity on boards. Citing the challenging and multi-faceted nature of the topic, and the practical impossibility of directly linking one specific cause to one specific effect, Ferreira bluntly states that “current research does not really support a business case for board gender quotas.”

Increasing gender diversity in the corporate world is undeniably something our society should be working toward. But if Trudeau truly cares about using government policy to address this issue, then perhaps he might focus less on grand, yet potentially problematic, initiatives such as Bill C-25, and more on the pursuit of policies that are genuinely supported by evidence-based research, such as improving the affordability of childcare services or incentivizing universities and colleges to recruit more women students in fields such as science, technology and engineering. To paraphrase recent argument in the National Post by Kevin Carmichael, it’s great that our prime minister cares so much about gender issues: Now if only he would get serious about it.