Economic Woman

Econometrics, gender, equity and more.

Setting the bar low for corporate boards

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You know that an institution is lagging behind when this is considered good news:

A report last year by search firm Spencer Stuart found women accounted for 21 per cent of new directors added to boards of Canada’s 100 largest companies between 2006 and 2008. That was up from 14 per cent between 2002 and 2005.

That’s from this week’s Globe feature on the gender balance in corporate boardrooms. There’s nothing revolutionary here, just a reminder that at least in the private sector, it doesn’t take much to distinguish yourself as a leader in women’s leadership. And why should we care about getting women on boards? We’re told they can be a competitive advantage:

Aiding the battle is more research suggesting the presence of women on boards can actually boost a company’s bottom line. Research firm Catalyst Inc., for example, completed a U.S. study in 2007 on Fortune 500 boards, which found that return on equity was 53 per cent higher at companies with the most women on their boards compared with those with the fewest women. The argument is that people with different perspectives can improve the quality of decisions made by a board, says Deborah Gillis, Catalyst’s vice-president of North America.

I am not altogether convinced by this study, as it is summarized. I’d rather see something longitudinal, showing that companies that add women to their boards do better after diversifying. Otherwise, you have to wonder whether causality runs the other way, and better-performing firms are just the ones in a position to challenge the male status quo.

If this stuff interests you, you might want to drop by a live chat at The Globe, happening right now. If you miss the chat, a transcript will be available online later.

EDIT: In the live chat, Catalyst’s Deborah Gillis expands on their 2007 study. I still don’t find this especially compelling. Here’s the relevant section of the chat:

[Comment From Allison] Deborah, are there any longitudinal studies showing that women’s membership on boards makes firms more competitive? I’m not all that convinced by a simple cross section regression, which is what the article seems to summarize from your 2007 US study.

Deborah Gillis: Hi Allison, thanks for the question.   You are right that Catalyst released a study in 2007 that looked at the correlation between more women on board and financial performance of Fortune 500 companies in the US.   We did look at several years of data and what we found was that on average, those companies with the highest representation of women directors, as compared to those with the lowest, had stronger financial performance.   Return on Equity was 53% higher; Return on Sales was 42% higher; and Return on Invested Capital was 66% higher.   The numbers were even higher when there were three or more women – the critical mass that we hear so much about.    We found a similar correlation in an earlier study that looked at women in executive roles.

Claire Neary: Do you draw any direct conclusions from these correlations, Deborah? Do you think the companies with more women on their boards have other things in common as well?

Deborah Gillis: I think that what we’re seeing here is that when you have more diversity reflected around a decision-making table – and I am talking about diversity in the broadest sense – the way you look at problems changes.   Different questions get asked.   Different points of view and experience are brought to the table.   And when that  happens,  innovation and creativity  increase, as does the commitment and career satisfaction  of  employees.    Another point is that  Catalyst research would suggest that when there are more women directors, there will be more women corporate officers in the future.   Again, as the board is more diverse, there are more role models and the board has more interest and credibility in raising questions about diversity in the organization as a whole.

Gillis is explaining how causality might plausibly work, but she hasn’t provided real empirical support. This isn’t to say that I think it’s a bad idea to appoint women as board members. It would just take a better study to convince me that the benefits of hiring women are this simple and immediate. Gillis certainly isn’t alone in telling the corporate world that women will help their bottom line in the short run, but I’m not sure that’s the right strategy, especially without stronger evidence.


Written by Allison

27 November 2009 at 1:16 pm

Posted in Uncategorized

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