Credit Suisse (CS) just released a new study that digs up an issue that is always good for a headline. The study is titled “Gender Diversity and Corporate Performance”.
Feel free to read it before reading this rest of this post. You can also read about it on Forbes, Bloomberg, Globe and Mail and any number of other sites. I am not going to give you all the links because it is an easy Google search and you will likely find many more references. The stories all claim the same thing. Having women on your board of directors is good for your stock price and company performance. The common problem with all of the articles and that is they rely on this CS report.
It begins with presentation of the data that it has collected in the years since 2005. It shows us very nice graphs and return on investment charts and I am fine with all of that. What I expected in the next sections was a clear statistical analysis of the data that used accepted tools to prove the claims that the rest of the paper is based on. That is not included. What we get instead is a set of correlations that are not quite backed up with any proper analysis. I understand that this was a report released for the public but there was nothing stopping them from using the proper technical methods and then summarizing the findings for the report. Or they could even provide a website where you could see their more detailed results. They did not do that. They present their correlations and move on. If you are not clear on correlation vs. causation please take 5 minutes now to look it up and I assure you the rest of this post will be more interesting.
The introduction holds references to a few studies that have been conducted on this topic and as they put it
“There is a significant body of literature on this issue; articles on the subject span several decades. Some suggest corporate performance benefits from greater gender diversity at board level, while others suggest not.”
For our first source we turn to Catalyst.
“Catalyst Inc (2007) showed that Fortune 500 companies with more women on their boards were found to outperform their rivals with return on sales 4 percentage points higher…”
Here is the referenced research. A one page infographic. Not a problem, an infographic can carry lots of information! For instance, on this infographic we have the sentence “Financial measures excel where women serve” right at the top in big letters. There is also a small footnote (number 2) on that sentence. “Correlation does not prove or imply causation.” Okay. We are still looking for studies that provide more concrete results.
So we take another reference right from the CS report. They mention two quantitative studies that use the data to perform regressions (statistical tools).
“Other studies, such as those conducted by Adams and Ferreira or Farrell and Hersch, have shown that there is no causation between greater gender diversity and improved profitability and stock price performance.”
So when the numbers were analyzed properly we were not able to find a relation. It turns out that Adams and Ferreira actually concluded that
“…the average effect of gender diversity on firm performance is negative.” And I got that from their abstract so it was not exactly buried deep in the paper somewhere.
This issue has been presented a number of times and a very influential paper that disputes the claim that more women on a board leads to better corporate performance is “Corporate Board Diversity and Stock Performance” by Frank Dobbin and Jiwook Jung. This, again, is a quantitative paper that can find no causation. Strangely, this paper appears in the references section of the CS report but is not cited directly. I would assume it is included because the conclusion Dobbin and Jung draw is that successful companies might tend to appoint women instead of the effect moving in the other direction.
This type of research is important and I fully encourage it to continue. However, the research needs to proceed in the proper order. The main issue with the CS report is that they have a large body of work that is devoted to explaining the reasons why women are better for corporate performance without actually showing conclusive evidence that they are.
Added note: For a good quantitative paper that supports the idea that women on a board improve performance using Spanish data see “Female Board Appointments and Firm Valuation: Short and Long-term Effects” by Kevin Campbell and Antonio Minguez Vera.