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There's a case for companies putting more women on boards, but it's not profits

Pretty much exactly how a corporate board meeting looks
Pretty much exactly how a corporate board meeting looks

Fewer than 1 in 5 members of corporate boards at major companies are women, according to a new census of board members by Catalyst, a non-profit organization that promotes women in business leadership.

The further up the corporate ladder, you look, the scarcer and scarcer women become — while women make up 45 percent of the workforce at S&P 500 companies, they make up only 4.6 percent of those firms' CEOs.

Women corporate boards


The natural implication is that this is a problem — not just for women, but for companies, too. Some argue that having women represented on boards helps firms financially.

But look closer, and the evidence is less clear as to exactly when and how this happens. Catalyst, for example, found in 2011 that companies with more women on their boards had better returns on their investments. But the correlation may only hold in some conditions. Credit Suisse shortly thereafter found a relationship between more women and better stock performance, but only since the financial crisis.

Likewise, in a 2014 meta-analysis of 140 studies, researchers from Lehigh and Syracuse Universities found women's board representation was only related to better stock performance in countries that already had higher levels of gender equality in other areas, like access to education and jobs. And when you looked at all countries together, that study found zero correlation between women's representation and market returns, like stock performance. However, they did find a consistently positive correlation with profits.

Moreover, even if more women board members are in fact correlated with better performance, that doesn't necessarily mean that adding more women to your board will boost the bottom line.

"Any time someone says you can trace the specific actions of a board of directors to the bottom line of a company, it's highly unlikely except in indirect ways," says Sydney Finkelstein, professor of management at the Tuck School of Business at Dartmouth. "In a direct way, that's just not the way it works."

Really, it may be much more complicated than a simple causal link from more women to better performance — rather there are signs that healthier companies are more likely to put women on their boards.

"It could be that the better-run companies recognize that having a diverse board has very important productive qualities to it," says Susan Ness, a former FCC commissioner who often speaks on women's leadership issues, but she adds that she thinks more women or minorities can sometimes make a board function even better. "It lessens groupthink, especially if you have a critical mass of women or a critical mass of minority members." In addition, trying to make a board more diverse means tapping a broader talent pool, as Credit Suisse noted in their report.

But maybe thinking about diversity in terms of how much profit it drives is a cynical way of thinking about something we all value. Adding a woman (or two or ten) to your board might not amp up your stock price, but there's something to be said for diversity for diversity's sake.

Correction: This article originally discussed the 2014 study as it relates to stock performance but did not include the correlation to profits.

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