Study finds women directors damage profits

I got a hold of the paper itself, <i>Women in the boardroom and their impact on governance and performance</i> by Adams and Ferreira, Journal of Financial Economics (currently an accepted manuscript, not yet published). It's long, at 46 pages including data tables. Here's the abstract:<p>"We show that female directors have a significant impact on board inputs and firm outcomes. In a sample of US firms, we find that female directors have better attendance records than male directors, male directors have fewer attendance problems the more gender-diverse the board is, and women are more likely to join monitoring committees. These results suggest that gender-diverse boards allocate more effort to monitoring. Accordingly, we find that chief executive officer turnover is more sensitive to stock performance and directors receive more equity-based compensation in firms with more gender-diverse boards. However, the average effect of gender diversity on firm performance is negative. This negative effect is driven by companies with fewer takeover defenses. Our results suggest that mandating gender quotas for directors can reduce firm value for well-governed firms."<p>The pre-print PDF seems to have encryption/defense against copy/paste, so I can't post further extracts here.

One possible explanation: Companies which are under pressure to diversify their boards select people who are less competant/experienced.

The title of this submission is grossly inaccurate---the study in question shows nothing of the kind.<p>This is a textbook example of the media (and the submitter) jumping on correlation and confusing it with causation. Women represent a tiny minority of board members overall, and it's reasonable to assume that the old boys' network would be strongest among the wealthiest and most powerful boards. This demonstrates nothing but that the glass ceiling cracks on the lowest levels first.

Another alternative explanation: Female directors disrupt the existing, and lazier, board atmosphere with their better attendance records and stricter monitoring. Social friction, or even a low level power struggle emerges, in the worst cases, directing attention from other directors toward the immediacy of the contentious social situation on the board, in the worst cases fueled by sexism, but possibly just fueled by cultural differences.<p>(An older version of) the actual study is here:<p><a href="http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/15730/1/WP2008-7a.pdf" rel="nofollow">http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/15730/1/...</a><p>The abstract is:<p>Although some argue that tokenism drives the selection of female directors, we show that they have a significant impact on measures of board effectiveness. In a large panel of data on publicly-traded firms from 1996-2003, we find that (1) the likelihood that a female director has attendance problems is 0.29 lower than for a male director, (2) male directors have fewer attendance problems the greater the fraction of female directors on the board, (3) firms with more diverse boards provide their directors with more pay-performance incentives, and (4) firms with more diverse boards have more board meetings.<p>We also show that the positive relationship between corporate performance measures and gender diversity documented by previous studies is not robust to attempts to address the endogeneity of diversity. Instead, the average effect of gender diversity on both market valuation and operating performance appears to be negative. This negative effect is driven by companies with greater shareholder rights. <i>In firms with weaker shareholder rights, gender diversity has positive effects.</i> Our results suggest that diverse boards are tougher monitors. Nevertheless, mandating gender quotas in the boardroom may not increase board effectiveness on average, but may reduce it for well-governed firms where additional monitoring is counterproductive.<p>The fact that diverse boards perform better than homogeneous boards where shareholder rights are weaker seems consistent with the hypothesis that the diminished performance of women directors is stress and contention based: perhaps the tensions between the male and female members of the board, the CEO, and the shareholders, are more difficult to work within than if the board needn't bow to the shareholders as much.

“Our research shows that women directors are doing their jobs very well. But a tough board, with more monitoring, may not always be a good thing.”<p>Hm. Let's think about this. Perhaps if AIG had more women on the board, they would have been more closely "monitoring" all the exposure the company had in its insurance of mortgage-backed securities. So maybe AIG would not have made so much money in that line of business prior to the collapse of those assets, but perhaps they also would not have needed a huge government bail-out either. Just speculating here...<p>The study claims that women on boards tend to monitor more closely and perhaps that's because they are more risk-averse. I can't see that as always being a bad thing. Could be taken too far, but surely it's been lacking in recent times.

A good link about study design, worth applying to almost any news story about a supposedly scientific study.<p><a href="http://norvig.com/experiment-design.html" rel="nofollow">http://norvig.com/experiment-design.html</a><p>Most "studies" don't even have an experimental design, so they need work right from the beginning.

Anyone find any holes in the data or methodology?

Stray thought: If "forced" to diversify, then they are probably choosing people they don't even like (much less trust) and this will hurt performance no matter the gender, age, skin color...etc...of the person they feel was foisted upon them.

It is because they're forced to wear pants.<p>edit: It is because they're forced to wear pants by a chauvinistic structure.