Today’s WSJ asks the question: why do so few women sit on US corporate boards? According to Catalyst, women now hold about 16% of Fortune 500 board seats, as illustrated in the chart at right (source: Catalyst) The article then goes on to the standard discussion of the Catalyst data on gender diversity and corporate profits in a manner that suggests that gender diversity improves profitability:
Major companies with three or more female directors achieved significantly better financial results than those with none between 2004 and 2008, according to a 2011 study by Catalyst, a nonprofit research group. In general, they outperformed companies with zero women on boards by 84% for return on sales, 60% for return on invested capital and 46% for return on equity.
I’ve repeatedly discussed the problems with this line of reasoning, as well as the numerous academic studies finding no impact or, in at least one case, a negative impact, of gender diversity on corporate performance. See here and here, for example. Previous board diversity posts are collected here.
Popular studies, such as Catalyst’s (discussed in the WSJ article quoted above), that consistently document the superior financial performance of firms with more female directors are frequently cited in the press and by industry and advocacy groups as proving “the business case” for board diversity. In reality, we know very little about whether, how, why, and under what conditions board diversity impacts firm performance. (See here for a literature review)
Nonetheless, the WSJ inadvertently asks a good question. With the notable exception of the Matsa and Miller study (previously discussed here), studies of board diversity tend to show no negative effect of female board representation, and there is clearly public pressure to diversify boards, both in the US and elsewhere.
Moreover, in recent, ongoing research, Lissa Broome, John Conley, and I interview board directors and other corporate insiders about their views on board diversity. Nearly all of our respondents extol the virtues of board diversity in the abstract (though they often struggle for meaningful rationales and/or examples, a point about which we’ve written at length). Which causes us to ask respondents the same question posed by the WSJ: if board diversity is supposedly so great for business, why isn’t there more of it?
In our forthcoming book, The Danger of Difference: How Corporate Directors Talk About Diversity (University of Pennsylvania Press), we discuss our respondents’ answers when confronted with the disconnect between the nearly universal “board diversity is good for business” talk and the reality of limited change in boardroom demographics. Some of their answers are also mentioned in the WSJ, including the preference for experienced CEOs and CFOs, most of whom are men, and women’s more limited professional networks.
Like the WSJ, our respondents also discuss the talent pool question, but disagreed on the question of whether a limited pool of talented women explained the slow growth of women on boards. Some respondents argued that there was still a shortage of qualified women willing and able to take on the job, others argued that this was no longer the case, and some argued that though there were talented women, many lacked public company experience and, instead, had found success as small business owners. Even female accountants and lawyers, according to one (female) respondent may make early career choices that affect their later attractiveness as board candidates:
The difficulty for women getting on boards, particularly of sort of bigger boards is that most of the women, at least at [Company X], didn’t have public company experience and that could be for a few reasons. . . . I think also for the women, you know, a lot of women didn’t want to do the public company stuff if they had children because you get called, [inaudible 01:16:00] you get called at a moment’s notice. You don’t have the same control over your schedule so the number of women out there that they might sort of technically meet the financial expert but that really have the public company experience to really do a job or to not learn on the job is probably not as high.