No quotas for women on corporate boards

August 21, 2009

Diana-FurchtgottRoth.jpg — Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The views expressed are her own. –-

Although women moved into the workforce in great numbers in the 1980s, they still have to catch up to men in terms of leadership positions in corporate America. The New York human resources firm Catalyst found that women hold 16.9 percent of officer positions in American corporations, and only 11 percent of senior leadership line roles.

The question is, why are there so few women corporate board members? Those who have a proclivity to assume sex discrimination might fear the worst. Others might simply assume that relatively few qualified women were available for board slots, or that boards with women performed poorly in the marketplace.

Earlier this month the London School of Economics released a new study showing that publicly-traded companies with more women on the boards of directors do better in terms of firm management but worse in terms of economic performance. The study, entitled Women in the Boardroom and Their Impact on Governance and Performance, was just published in the Journal of Financial Economics.

The authors, economists Renee Adams of the University of Queensland, Australia, and Daniel Ferreira, of the London School of Economics, conclude that additional women improve the governance of the firm. Female board members were more likely to be assigned to audit, nominating, and corporate governance committees and they had higher attendance at board meetings. Chief executive officers of companies with female directors are held to a higher standard of accountability.

Surprisingly, the authors claim to have statistical results that reveal precisely this politically incorrect result: firms with women on board have lower return on assets than firms without women board members. The firms are less profitable and have lower financial performance.

If that result seems counter-intuitive, you may be correct. The statistical results presented by the authors are not robust to changes in specification, and many of the key estimated parameters are not significantly different from zero. Even more troubling, some of the statistical techniques employed appear to be poorly chosen.

The authors used data from 1996 to 2003 collected by the Investor Responsibility Research Center, a group that funds research on corporate governance, and ExecuComp, a database that tracks compensation of the top five directors in S&P 500, S&P 400 MidCap and S&P SmallCap 600 indexes. The sample contained data on 1,939 firms and, within these, 86,714 directorships.

On average, these firms had slightly more than 9 board members each, but 39 percent of the annual observations are firms with no women. Moreover, 40 percent of observations were firms with only one woman on the board. Thus, fully 79 percent of the observations are firms with boards with either one or no women on the board. On average, fewer than 10 percent of all directors are women.

Professor Ferreira explained his results this way in a press release issued by LSE, ”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. Indeed we see that increased monitoring can be counter-productive in well-governed companies.”

He continued, “When you meddle in boards there may be unintended consequences. This is particularly important to bear in mind in the current context when companies are under increasing pressure to change the composition of their boards.”

As the global economy struggles to recover from the recession, this conclusion is worth bearing in mind. Women will only be harmed if it is perceived that they have gained their directorships through a system of quotas. Rather, they need to make sure that they put in the hours of work and go for the tough negotiating strategy so that they move to the top on their own and gain board seats on their own merit.


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I await the comments of Harriet Harman. As someone who is entirely capable of adding 1+1 and getting 4 – or in the case of the Olympics Budget making a complete mess of it she will be guaranteed to come up with a ridiculous argument about how this is better for companies, better for shareholders and better for the economy!

Posted by nick | Report as abusive

More women than men are going to and graduating college, so there should be plenty who are qualified. Perhaps the race to place women on the board has resulted in an overlook of qualifications. Worse, the qualified women may pose a threat to the existing board members and they may be selecting the less qualified. I wonder what the statistics are on women starting their own company. I’ll guess it closely matches the 11 to 16.9 percent. If so, perhaps it is what it is and the gol of 50/50 might just be impractical.

Posted by Rahuel O’Tool | Report as abusive

The study indicates that the number of females on boards is small, thus, the females represented in the sample set is also small. I would be curious to know which members sit on the personnel or HR committees of these under performing firms. Have their been any longer term cohort studies?
Sorry, the static results of one study do not tell a story.

Posted by Maria | Report as abusive

Women have not been in upper management long enough to extinguish there ethics and morals. Being mothers, this is much harder for them to do than the old greedy men at the top. As long as they attempt to maintain some sense of ethics in their work, then they will not be able to take positions of power. Oh, some spin it with “Having to make the hard choices”.

Posted by Russ | Report as abusive

Is it possible that not as many women want to be on corporate boards?

I don’t expect there are very many artists on corporate boards, either, but I don’t see that as a problem.

Posted by Tim Jones | Report as abusive

After all the philosophy, and the laws and proposals, the results remain the same. Male-dominated government, corporate suites, and social acceptance have led to wars, poverty, gross inequity and the decline of the American dream to second class status in the world. It’s time to try something else, without delay, and quotas ARE needed to make it happen NOW.

Posted by SpudM | Report as abusive

Unfortunately I see the situation as much more grave than the bleak picture which is current. Corporations have been seeking to lower all levels of pay within the ranks for years. This will give them an excuse to lower pay by eliminating the higher paid executives. Unfortunately , in the intuitive sense, having a lower paid executive (male or female) may result in circumstances which are less conducive to the company performing. After all, this is a Capitalistic society, the top person wants ALL the money – typically. I beleive the term for this is…Greed. Greed will stand in the way of any appropriate result.

Skill levels at all position titles are being reduced for the sake of one person’s profit and for stock prices. If companies are required to change staff – no matter who they hire, the end result will be a lower skill level and a lower pay for that person. I have already experienced this myself. I found out how much my replacement was getting paid – it was approximately 30% less. The justification for the pay was skill level, experience, and education.

I do beleive that me assisting to save the company (prior to this) was considered irrelevant.

Posted by Jeff | Report as abusive

This actually doesn’t strike me as exactly counter-intuitive. A better-governed business is probably providing more support to employees in the form of better pay and better benefits. These things cost companies a lot of money, so there would be less “profit” at the end of the day. I think women, because of a (cultural or biological) tendency to take a holistic view, are also more likely to be proactive on taking care of employees and making more socially-beneficial decisions. Good for society, but not so good for individual companies.

Posted by Cyndi | Report as abusive

Perhaps the reason why women on the Boards resulted in a bit less profit was because they were keeping the company honest — much of our financial crisis over the past 2 years was the result of guys inflating profits to increase their own benefit in the form of stock options, and to come up with things like shaky real estate investment propositions that were actually a house of cards — perhaps smaller REAL profits aren’t a bad thing.

Posted by NANCYB | Report as abusive

Look around, you will see that American corporations have depended on predatory practices and policies to bring in the very highest profit possible: “Chief executive officers of companies with female directors are held to a higher standard of accountability.” Well duh, if someone is actually looking over the CEO’s shoulder in stead of turning a blind eye, of course the predatory practices that are required in order to bring in the absolute MAXIMUM PROFIT POSSIBLE in any given business will be curtailed, hence less profit. I, for one, am OK with less profits brought in by corporations when the difference is not being squashed and squeezed and bled dry by some capatalist who wants to upgrade their yacht.
Up with quotas, down with economic depredation!!

Posted by Phoenix Bailey | Report as abusive

Its possible the reason why so few women are on Corporate Boards are because the remaining 84% of the males that are on these boards are married to women who are generally homemakers. Thus they may not perceive many women in this role.

Posted by Joe Mezzo | Report as abusive

I will be interested to see how the numbers change when all the baby boomers have finally moved out of senior management.

Posted by SarahA | Report as abusive

Have you ever considered that because women are involved in the auditing process that the books aren’t cooked in the first place?

It’s a simple but common phenomenon in corporations worldwide.

Here’s an example: Enron had no female board members. Enron paid Arthur Anderson millions per year as accountants and as consultants, creating a conflict of interest. When Sherron Watkins (a mid level female executive) wrote her now famous memo, warning of the impending accounting scandals, she was ignored.

The way American corporations report profits is not scientific nor is it representative of their real balance sheets.

For instance, FASB accounting rules allow banks to massage data on their toxic assets at their own discretion and report their value as higher than the current mark to market prices.

Goldman Sachs, is currently using an illegal flash order system in their high frequency trading platform to manipulate market prices and skim from slower investor’s profit margins, creating billions in profits at the expense of retail and institutional investors alike. Furthermore, when Goldman reported it’s latest record profit.

From Bloomberg: “Revenue in the three months ended June 26 was $13.8 billion, compared with $9.43 billion in the first quarter and $9.42 billion in the second quarter a year earlier.” 0601087&sid=a2jo3RK2_Aps

The CEO purposefully lied about the amount of revenue it claims Goldman receives from High Frequency Trading.

With less female MBA and law graduates, the chance of them entering the business/management sphere are lower, and if and when they climb up the corporate ladder, they have to put their ethics aside if they intend to compete with men in the culture of corporate corruption. Because that’s what we’re really talking about.

Let’s get to the bottom line: Most publicly listed corporations are not run ethically, or for the purpose of increasing a firm’s health, longevity or value to society, but for the sole purpose of short term profit using any means necessary, so the board members and executives can cash out their stock options, faster and at a higher profit.

Posted by Fiona Christine | Report as abusive

Dear Writer,
I liked all your writings in regard to corporate and economic affairs from time to time.
After reading of this article from some special interests,the following points for general observations and for further debates in higher corporate schools for learning as well as implementation in future growth.
1.I have observed many leading Indian and from some Asian companies,corporate heads of women are for just official and business records only.
2.I have not seen remarkable progress on resource mobilizations,corporate briefings,and getting more profits to their companies.
Here is a exception,Pepsi is doing well,due to very innovative,flexible attitudes by a single woman in general.
3.In India,many corporate women heads joined together and started a big chain of super markets,like Wall Mart,but failed miserably and it was closed.
4.There is no proper constant,consistency approaches to all big problems
5.Psychologically reading,Many women are highly sensitive and emotional.
6.Some times, over gossiping leads to very less growth in all companies spheres.
&.Easily provoking,difficult to withstand all hard pressure while dealing with their clients,labors,and with government agencies for getting licences,tax submissions and in audit submissions to revenue authorities.
Still i can write more and more merits and demerits of women corporate heads,functioning etc.,
Rest of things are left you for further debate.
Once women corporate start with flying colors,then,their invisible egos will create strife situations either at home or at office.

Posted by krishnamurthi ramachandran | Report as abusive

[…] of the fiercest critics of quotas come from women. Economicst Diana Furchtgott-Roth argued in 2009 that quotas will do more harm than good: Women will only be harmed if it is […]

Posted by Will quotas work? | | Report as abusive

It’s really a pipeline issue in getting more women onto boards. We’ve found rporate-Women-Solutions-Work women tend to fall out of the pipeline as they take care of family and childcare issues. They don’t progress and get the jobs and visibility needed to position themselves for board level opportunities.

They also are at a disadvantage because companies tend to find candidates through processes that usually have more men in the system such as search firms or the CEOs friends and acquaintances. They tend to surface those with prior experience who would be predominately men. Women need to proactively network their way on in

Posted by wtarken | Report as abusive

[…] although it can hardly be said that the consensus is complete, whether in Europe, Australia or the USA […]

Posted by Feeling ‘instinctively right’ « a million small conversations | Report as abusive