Robinson’s Kris Byron and co-author Corinne Post examined conflicting research about whether the presence of women on company boards improves financial performance.
An extensive but inconsistent body of research has investigated the financial impact of women serving on corporate boards of directors. Supporters of gender diverse boards could cite research demonstrating that companies with women board members boasted stronger financial performance than those with boards composed solely of men. Skeptics could point to different studies finding that corporations with women on their boards showed poorer financial performance than all-male boards.
Kris Byron, an associate professor in Robinson's Department of Managerial Sciences, and Corrine Post, an associate professor of management at Lehigh University College of Business and Economics, were intrigued. So intrigued that they conducted a meta-analysis of the research in which they combined 140 studies spanning 35 countries and 90,000 firms, the results of which were published in an article in the Academy of Management Journal.
The key finding? Firms with women on their boards are indeed more profitable. Byron and Post uncovered two reasons why. First, boards with female directors tend to make stronger efforts to monitor the firms. They spent more time in board meetings and were more likely to make efforts to monitor the CEO and the firm in general. Second, boards with more female directors are more likely to be concerned with and involved in influencing the firm’s strategy.
Byron and Post also found that the relationship between board gender diversity and profitability is strongest in countries such as New Zealand and Israel that have tougher laws and regulations preventing directors from enriching themselves, allow shareholders to sue for director misconduct, and provide other shareholder protections.
How investors evaluate firms with more female directors depends, in part, on the level of gender parity in a particular market. In countries with high gender equality such as Sweden and Norway, investors evaluate firms more positively when they have more female directors; in countries with low gender parity such as India and Kuwait, investors evaluate firms more negatively when they have more female directors.
Byron and Post suggest that efforts to ensure director accountability and to open educational and employment opportunities to girls and women may provide the conditions that will motivate firms to select female directors for their performance-enhancing potential.