Golden Skirts don’t necessarily add Midas touch

David Cameron has been taking advice about Norway’s 40% quota of women on boards.There is a campaign to get the UK up to 25% by 2015.

Someone has even started a 30% club to improve on that figure.

So the general impression is that this is a good thing. Cameron says there is overwhelming evidence that having women on boards is good for business.

The government has also said that if companies won’t do it voluntarily the government might have to impose a quota.

That’s what happened in Norway after the 2003 legislation failed to achieve its target – moving from 9% to 40% – by 2005. So on January 1st 2006 publicly listed companies were given two years to comply or be dissolved.

So is there “overwhelming evidence” that it’s a good thing? Unfortunately researchers at the Ross School at the University of Michigan found that having the 40% quota negatively affected companies. They also believe the same thing would happen in the USA and the UK as they have similar systems of governance. Amy Dittmar, associate professor of finance, says “boards are chosen in order to increase shareholder wealth. Placing restrictions on the composition of boards will reduce value”.

First the stock price dropped by almost 3% following the introduction of the new law and 5% for those companies with no women on the board at the time. A measure of the firm’s corporate governance used to determine a company’s value, Tobin’s Q ratio, dropped 18% where companies had to increase the number of women by 10% or more.

One of the researchers, assistant professor of finance Kenneth Ahern, said that their findings support the view that board structure affects value. “Firms that were required to make the most drastic changes to their boards also suffered the largest negative returns. …constraining the selection of board members has a large negative impact on value”

Ahern and colleague Amy Dittmar point out that this is not because of the gender of the new board members but because of their lack of experience and young age. The constraint imposed by the 40% quota led firms to recruit women board members that were younger and with different career experiences. Dittmar says “when firms were free to choose directors before the rule they tended to choose women who were similar to men directors”. Recent research suggests women perform less well than men in competitive situations so could that have a bearing on it as well?

With a large demand and a small supply firms were forced to select directors they wouldn’t otherwise have chosen. And one newspaper report said that one women had ended up on 14 different boards.

Perhaps this research should give everyone a pause for thought. What’s good for diversity is not necessarily good for the company’s performance.  I’m sure women want to be in top jobs on merit and with more women than men graduating you might think it’s only a matter of time before we see more of them up there and the number of women on boards has increased lately in the UK.

However the number of women in senior management positions seems to have dropped – to around 20% globally, according to the Grant Thornton International Business Report. And in privately held businesses the number with no women at all in senior management has increased to 38%. Recent UK research shows that women managers are more critical of  organisations so does that influence women in deciding whether or not to go for promotion?

Whatever the reason with fewer women in senior management how will they provide succession at board level?

And should we really be worrying about gender imbalance. Don’t shareholders want the best person for the job irrespective of gender?

FYI the country with the most women in senior management positions is Thailand (which also has most female CEOs with 30%), followed by Georgia, Russia, Hong Kong and the Philippines. Not what you might have expected? But probably no surprise to find India, Japan and the UAE have less than 10% of women in senior management.

Update March 2013

In contrast to the US research a study of the French blue-chip CAC Index found that companies with at least a third of females in management positions had a 30% higher return than others over the last 6 years.

Professor of the management of human resources at Geneva University, Michel Ferrary, found that the CAC 40 had lost 35% of its value between since 2007 but the 10 companies which employed at least 35% of women managers (dubbed the Femina Index)  lost only 5% of their value.

The 10 companies in the Femina Index included Axa, Accor, Danone, and L’Oreal. Ferrary said that these companies were; “less discriminatory, drew their employees from a wider pool, and were more in tune with consumers.”  More diversity seemed to improve decision-making (see also:  Teams & Diversity).

The French government requires companies to have 40% women directors by 2017 but not one of the CAC 40 companies has a female CEO.




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