Many commentators suggest that gender diversity in the corporate boardroom improves company performance because of the different points of view and experience it offers. However, rigorous, peer-reviewed academic research paints a different picture. Despite the intuitive appeal of the argument that gender diversity on the board improves company performance, research suggests otherwise.
Results of numerous academic studies of the topic suggest that the presence of more female board members does not much improve — or worsen — a firm’s performance. In this opinion piece, Wharton management professor Katherine Klein summarizes academic research on the topic and discusses the possible reasons and implications for these surprising findings. Klein is also the vice dean of the Wharton Social Impact Initiative.
Do companies with women on the board perform better than companies whose boards are all-male? Many popular press articles and fund managers make this claim, citing studies by consulting firms, information providers and financial institutions, such as McKinsey, Thomson Reuters and Credit Suisse.
Writing recently on Huffington Post, for example, one consultant observed the following:
“Companies with gender-diverse management teams have been proven to consistently perform better and be more profitable than those without them. There is overwhelming evidence to support the value of having more women in senior leadership positions. A growing body of research –including studies by McKinsey & Company — has proven that companies with more women in senior executive and board roles have advantages over those that don’t.”
But research conducted by consulting firms and financial institutions is not as rigorous as peer-reviewed academic research. Here, I dig into the findings of rigorous, peer-reviewed studies of the relationship between board gender diversity and company performance.
“Rigorous, peer-reviewed studies suggest that companies do not perform better when they have women on the board. Nor do they perform worse.”
Spoiler alert: Rigorous, peer-reviewed studies suggest that companies do not perform better when they have women on the board. Nor do they perform worse. Depending on which meta-analysis you read, board gender diversity either has a very weak relationship with board performance or no relationship at all.
Wealth of Data on Board Gender Diversity
There have been many rigorous, peer-reviewed studies of board gender diversity. Given global interest in the effects of board gender diversity and the availability of abundant data on board gender composition and firm performance, many researchers have investigated the topic. The research literature includes over 100 studies of firms in 35 countries and five continents (Post and Byron, 2015).
Consider two recent meta-analyses that have been conducted to summarize prior research on the topic. Post and Byron (2015) synthesized the findings from 140 studies of board gender diversity with a combined sample of more than 90,000 firms from more than 30 countries.
Pletzer, Nikolova, Kedzior, and Voelpel (2015) took a different approach, conducting a meta-analysis of a smaller set of studies — 20 studies that were published in peer-reviewed academic journals and that tested the relationship between board gender diversity and firm financial performance (return on assets, return on equity, and Tobin’s Q).
No Clear Business Case
The results of these two meta-analyses, summarizing numerous rigorous, original peer-reviewed studies, suggest that the relationship between board gender diversity and company performance is either non-exist (effectively zero) or very weakly positive.
Further, there is no evidence available to suggest that the addition, or presence, of women on the board actually causes a change in company performance.
In sum, the research results suggest that there is no business case for — or against — appointing women to corporate boards. Women should be appointed to boards for reasons of gender equality, but not because gender diversity on boards leads to improvements in company performance.
The two meta-analyses reached very similar conclusions, despite the differences in the underlying studies (140 studies vs. 20, etc.). Because meta-analyses provide a statistical summary — a sophisticated averaging — of the results of prior studies, their findings are much more credible than the findings of any single study. The fact that two quite distinctive meta-analyses reached nearly identical conclusions carries a lot of weight.
Post and Byron (2015) found that firms with more female directors tend to have slightly higher “accounting returns,” such as return on assets and return on equity, than firms with fewer female directors. The relationship was statistically significant — suggesting it wasn’t a chance effect — but it was tiny. (Statistical significance depends in part on sample size. So, a tiny effect is statistically significant if the sample is big enough.)
The average correlation between board gender diversity and firm accounting performance, Post and Byron found, was .047. This suggests that gender diversity on the board explains about two-tenths of 1% of the variance in company performance. The average correlation between board gender diversity and firm market performance (such as stock performance, shareholder returns) was even smaller and was not statistically significant.
Pletzer and his colleagues (2015) found that the average correlation between the percentage of women on the board and firm performance was small (.01) and not statistically significant.
It’s worth noting that even if the meta-analyses revealed a stronger relationship between board gender diversity and firm performance, we couldn’t conclude that board gender diversity causes firm performance. To establish causal effects, you need to conduct a randomized control trial. But, that’s impossible here; we can’t randomly assign board members to companies.
Gender Diversity in the Boardroom
Commentators often suggest that corporate boards that include women will make better decisions than boards that include only men. The argument is that women differ from men in their knowledge, experiences, and values and thus bring novel information and perspectives to the board. They increase the board’s “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.
We don’t know exactly why this theoretical logic doesn’t hold among corporate boards. It is worth noting that gender diversity in other kinds of work teams is not significantly positively related to performance, either. Despite popular press accounts that suggest that teams high in gender diversity outperform those composed only of men or only of women, rigorous research does not support this conclusion. Meta-analyses linking team gender diversity to team performance (e.g., Bell et al., 2011) reach much the same conclusion as meta-analyses linking board gender diversity to firm performance — that is, the relationship between team gender diversity and team performance is tiny.
What’s going on here? Again, we can’t know for certain why board diversity doesn’t predict company performance, but it seems likely that some of the following factors explain the very weak and mostly non-significant effects:
- The women named to corporate boards may not in fact differ very much in their values, experiences, and knowledge from the men who already serve on these boards. The argument that gender diversity on the board will improve company performance rests on the assumption that the addition of one or more women to an all-male board will increase the board’s “cognitive variety” because women — the argument goes — differ from men in their values, experiences, and knowledge.
While research indicates that in general male and female adults differ somewhat in their