The FT reports on new research showing that female directors damage corporate profits. Sexy headline. I dug up the study itself to try to resolve the fact that other research has shown the exact opposite (as the piece in the FT points out). Here are the main conclusions of the research, by Renee Adams of the University of Queensland and Daniel Ferreira of the London School of Economics, which will soon appear in the Journal of Financial Economics:
1. Women boost attendance. Female directors are 30% less likely to not show up to meetings. When there are female directors around, men show up more often, too.
2. Women have a significant impact on corporate governance. Once you’ve got a woman in the mix, CEOs are more likely to lose their jobs over poor stock performance. You see the same effect when boards have a large fraction of outside directors. Women do not, however, meaningfully alter the level of CEO pay or the amount of it that is incentive-based. (It’s worth noting, women are less likely to sit on compensation committees.)
3. Women hurt corporate profits. Well, that’s not exactly what the researchers say. What they say is when companies score high on a particular measure of corporate governance (the ability to resist takeovers), having women on the board hurts performance—as measured by return on assets and Tobin’s q. However, when corporate governance is weak, they actually give companies a boost.
The researchers wrap their findings together and hypothesize that female board members are simply better monitors. When a company needs monitoring—I think we could all name a few that fall into that camp—then women add a real value. On the other hand, when companies are doing okay governance-wise, then the extra attention being paid can gum up the works.
So there’s the decision to be made: Do you want better-run companies that perhaps make a little less money? Or do you want the goal to be no holds barred financial return? Women can help you with one, but maybe not so much with the other.
Barbara!