Is a more gender diverse board good for a company’s bottom line? The answer is a bit more complicated than you might think.
According to a report from Fortune, a team of university researchers examined 2,000 companies over a period of 13 years. Overall, a company with a diverse board was more likely to pay greater dividends to shareholders and less likely to take large risks than one with a homogenous board. Professor Ya-Wen Yang of Wake Forest University’s business school asserts that “firms with more diverse boards are more risk averse, spending less on capital expenditure, R&D, and acquisitions, and exhibiting lower volatilities of stock returns than those with less diverse boards…adding women to boards improves corporate governance.”
While Dr. Yang’s study found a strong correlation between gender diverse boards and firm performance, other studies, including one by Harvard University’s Frank Dobbin, have shown no link between the two. Why are the results so variable?
The answer may lie in the specific needs and situation of the company in question. A new study examined the performance of Fortune 500 companies over two years to gauge how a gender diverse board affected performance. The researchers controlled for several variables, including the relative power of women on the board (i.e., did they have an executive position on the board or carry a notable level of prestige or accomplishment prior to their appointment). The research revealed that gender diversity can be a double-edged sword.
On the one hand, companies going through a period of strong performance proved to be more likely to adopt positive strategic change with strong female leadership at the board level. On the other hand, low-performing or challenged companies with strong female board leadership tended to sink even lower compared with companies with male-dominated boards. So should companies only recruit strong female leaders in times of plenty?
It’s not that simple. Women still account for only slightly more than 15% of board leadership among top companies. This lack of representation leads to a complex dynamic in which demographic differences and differences in viewpoint take on increased weight in challenging times. When companies flounder, people are less likely to listen to diverse viewpoints and communication challenges may be exacerbated leading to stagnation instead of necessary change. In contrast, in better times, companies may be more open to new perspectives, points of view, and strategies.
Two strategies, one long term and one short term, can both promote greater gender diversity and protect a company’s bottom line. In the long term, increasing the overall number of women serving on boards will decrease the sense of “difference” that impedes communication and progress in challenging times and will benefit the company. This type of change, however, takes time. In the short term, then, companies can manage diversity in times of troubled performance, consciously reducing threats and balancing the recognition that gender diversity is a long-term benefit with the need to address the challenges affecting the company’s performance.