

Study finds women directors damage profits - limist
http://www.ft.com/cms/s/0/5065f8ba-82c0-11de-ab4a-00144feabdc0.html

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limist
I got a hold of the paper itself, _Women in the boardroom and their impact on
governance and performance_ 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:

"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."

The pre-print PDF seems to have encryption/defense against copy/paste, so I
can't post further extracts here.

~~~
omouse
_The pre-print PDF seems to have encryption/defense against copy/paste, so I
can't post further extracts here._

Use a better, non-restricted PDF reader? :S

~~~
limist
Suggestions please? I tried Foxit Reader for Linux, no dice, c/p still picks
up gibberish. pdf2txt can't extract it. Printing to a ps doesn't help. Would
be very curious to hear of hacks around this restriction.

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

~~~
kscaldef
The article itself contradicts that explanation: "women were more effective at
tasks such as executive supervision and monitoring", "Female directors also
had a better record of attending board meetings", "Our research shows that
women directors are doing their jobs very well".

In fact, they also say that female directors were a benefit to "poorly-
managed" companies. So, one thing you might claim is that this fits in with
the general theory that the performance of men has a higher standard deviation
than the performance of women.

~~~
absconditus
Perhaps better "executive supervision and monitoring" is not desirable.

~~~
DaniFong
Perhaps more closely 'executive supervision and monitoring is undesirable when
the monitoring is done by people bound from the top, such as shareholders on
boards, or top executives on underlings.'

From the abstract: "This negative effect is driven by companies with greater
shareholder rights. In firms with weaker shareholder rights, gender diversity
has positive effects."

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vannevar
The title of this submission is grossly inaccurate---the study in question
shows nothing of the kind.

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.

~~~
limist
No, incorrect. There is weak correlation between posting an article and
personally agreeing with its title, because many times titles are simply re-
used, for expediency and accuracy.

Also, I personally did not confuse correlation with causation, see my earlier
comment. Sufficient correlation suggests further possibilities and questions
of causation. The researchers' quotations strongly suggests they too did not
confuse correlation with causation.

~~~
vannevar
The title of the article clearly and unequivocally states causation---it says
quite plainly that women directors are the cause of the lower profits, when in
fact the exact opposite may be true. I don't doubt that the researchers are
more responsible than those deliberately distorting their findings in order to
draw an audience.

Regardless of who is responsible, the title remains factually, objectively
incorrect.

------
DaniFong
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.

(An older version of) the actual study is here:

[http://hermes-
ir.lib.hit-u.ac.jp/rs/bitstream/10086/15730/1/...](http://hermes-
ir.lib.hit-u.ac.jp/rs/bitstream/10086/15730/1/WP2008-7a.pdf)

The abstract is:

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.

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. _In firms with weaker shareholder rights, gender diversity
has positive effects._ 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.

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.

------
ams6110
“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.”

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...

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.

~~~
Leon
That's some big speculation about AIG, and on the part of having women on a
board. What makes you think the board didn't know what was going on? They put,
and kept in, the CEO, one of the biggest reasons for AIG's collapse. And
besides, it wasn't just their over exposure to mortgage backed securities. It
was endemic of the entire company.

Here is a great piece on AIG's collapse, it was previously on HN, and is the
best article about it I've read yet:
[http://www.vanityfair.com/politics/features/2009/08/aig20090...](http://www.vanityfair.com/politics/features/2009/08/aig200908)

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tokenadult
A good link about study design, worth applying to almost any news story about
a supposedly scientific study.

<http://norvig.com/experiment-design.html>

Most "studies" don't even have an experimental design, so they need work right
from the beginning.

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chaostheory
Anyone find any holes in the data or methodology?

~~~
kscaldef
How could we, since the article doesn't provide any meaningful information
about either?

Of course, one can point out that they aren't doing randomized trials, but
that seems a touch unreasonable to demand.

~~~
chaostheory
The article links to the study:

[http://www.catalyst.org/publication/13/2007-catalyst-
census-...](http://www.catalyst.org/publication/13/2007-catalyst-census-of-
women-corporate-officers-and-top-earners-of-the-fortune-500)

I didn't have time to read the actual paper. I'm guessing the paper ignores
any other context aside from hard numbers within a specific time period; so
long term plays (with short term losses) are ignored.

~~~
kscaldef
No, that's a previous study which reached different conclusions from the study
which is the primary focus of the article.

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Mz
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.

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joubert
It is because they're forced to wear pants.

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

