Are women directors bad for a company's bottom line?

A new academic study disputes the theory that boards with more female directors perform better.

by
Last Updated: 31 Aug 2010

The report, published in the Journal of Financial Economics, found that companies that have proportionally more women on the board on average suffered worse financial performance – because there was too much monitoring of the executive team. This might seem odd in light of recent events – Sir Fred was supposedly given too much of a free rein at RBS, for instance. And it’s also in direct contradiction to various other reports suggesting that employing more female directors actually makes boards more effective. So who’s right?

The theory behind this paper is that boards with more female members are more effective at things like supervision and monitoring – but apparently that’s not always a good thing. The authors (Daniel Ferreira of the London School of Economics and Rennee Adams of the University of Queensland) suggest employing too much of a ‘Big Brother’ approach, thus risking interference from directors, could result in a loss of trust and lack of information-sharing – which will ultimately reduce profitability. Whereas the pivotal research in 2007 Catalyst found the exact opposite: that female board members actually boost profitability.

The study was based on a survey of around 87,000 directorships at 2,000 US companies between 1998 and 2003, so the data’s not exactly bang up to date. Nor does it cover the recent crash – which could explain why it conflicts with the widely-held theory that the financial crisis might not have been as severe if more women had held senior business roles. Researchers from Leeds Business School suggested earlier this year that women can make the difference between success and bankruptcy, while Harriet Harman also took up the theme this weekend with her daft quote about ‘Lehman Sisters, not Lehman Brothers’ (but don’t let that put you off).

We suppose one thing it may highlight is the potentially distorting effect of positive discrimination policies. Proponents say that it’s the only way for deserving women to get even with their male counterparts, but when you try and jerry-rig the system, there is a danger of unintended consequences. On the other hand, it hasn’t done the Norwegians any harm: back in 2002, the Norwegian government ruled that boards should be comprised of at least 40% women, with just 12 months for state-owned firms to comply. At the time, (mostly male) opponents grumbled that there simply wouldn’t be enough women to fill the roles – but now 44% of board member positions in Norway are now occupied by the fairer sex. And their economy certainly doesn't seem to be any worse off than ours as a result...


In today's bulletin:

RBS gloomy despite being back in the black
Are women directors bad for a company's bottom line?
Editor's blog: Murdoch declares end to online free-for-all
Bribe migrants to stay, says think-tank
Be more diplomatic, with YouTube

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Upcoming Events

Subscribe

Get your essential reading delivered. Subscribe to Management Today