Does Gender Diversity on Boards Really Boost Company Performance?

By Wharton management professor Katherine Klein. Excerpts:

"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"

"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."

"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."

"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."

"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."

"Some research suggests, for example, that gender-diverse boards make fewer acquisitions than all-male boards (Chen, Crossland and Huang, 2016). But, is this good or bad for firm performance? Companies are likely to benefit from acquisitions in some circumstances and to suffer in other circumstances."

"the relationship between gender diversity and accounting returns was tiny."

"The relationship between CEO gender and long-term company performance is statistically significant, the authors find, but tiny. The average correlation between CEO gender and long-term financial performance is .007."