Gender diversity a plus for corporate boards

A new study by Corinne Post, associate professor of management in the College of Business and Economics, has examined the relationship between a firm’s financial performance and the number of females on their board of directors.

“Women on Boards and Firm Financial Performance: A Meta-Analysis,” analyzed the data from 140 separate studies. Conducted with researcher Kris Byron of Syracuse University, the paper will shortly appear in the Academy of Management Journal. The article explores not just if corporations perform better when their boards include more women, but under what conditions female board representation improves, or impedes, firm financial performance.

The research team analyzed 140 studies representing roughly 90,070 firms in 35 countries on five continents. The findings bring clarity to the question of whether, when, and how female directors may be associated with financial performance. The three main findings demonstrate a positive connection between increased gender diversity and firm performance. Post and Byron found that female board representation is positively related to accounting returns and that the relationship is more positive in countries with stronger shareholder protections, perhaps because shareholder protections motivate boards to use the different knowledge, experience, and values that each member brings to the board.

The analysis also revealed that while there is little relationship between female board representation and market performance (near zero), the relationship is positive in countries with greater gender parity and negative in countries with low gender parity. The researchers believe this may be a result of gender differences (at least in certain societies) influencing investors’ evaluations of the future earning potential of firms that have more female directors.

Of particular note, according to the researchers, is that female board representation is positively related to boards’ two primary responsibilities, monitoring and strategy involvement. This suggests that it seems likely that the influence of female directors on firm performance may operate—at least, in part—by an increased attention to board activities that represent directors’ often legally mandated responsibilities.

Business and government leaders are increasingly arguing for support of the presence of women on boards (see Forbes: Why Seeking Out Diverse Opinions Has A Positive Impact On The Bottom Line) – and some have supported implementing regulations to increase these numbers. The Lehigh-Syracuse study shows how one can leverage the presence of women on boards for increased firm performance.

The findings also point the way towards determining the very important national differences in the performance effect of female directors, which largely depends on societal parity and shareholder protections.

More research from Corinne Post

• Post, Rahman, & McQuillen. 2014. From Board Composition to Corporate Environmental Performance Through Sustainability-Themed Alliances. Journal of Business Ethics, in press.
• Rahman & Post. 2012. Measurement issues in environmental corporate social responsibility (ECSR): Toward a transparent, reliable, and construct valid instrument. Journal of Business Ethics.
• Post, Rahman & Rubow. 2011. Green Governance: Board of Director Composition and Environmental Corporate Social Responsibility. Business & Society. 50(1): 189-223.
• Bear, Rahman & Post. 2010. The Impact of Board Diversity and Gender Composition on Corporate Social Responsibility and Firm Reputation. Journal of Business Ethics.97(2): 207-221.