Boardroom Diversity is Public Issue – Here’s Why

By Melissa J. Anderson (New York City)

When you bring up the need to get more women in the boardroom, you’re bound to encounter some push-back. You might hear, “Why should companies be told what the gender-makeup of their boardroom should be? Since companies are in the business of making money, won’t they automatically choose the right person for the job, regardless of gender, to maximize their revenues?”

No matter how many studies come out that say leadership diversity is good for business, most people, in the US at least, are still opposed to companies being required to fill a certain percentage of board seats with women. Most people feel it’s just none of our business, really, or the government’s, to meddle in the affairs of our largest corporations.

But, the people running our largest corporations are subject to public, cultural assumptions – which are preventing women from achieving their highest potential. The shareholders of these corporations – the public – are too. If the public is convinced that boardroom diversity is good for business, won’t shareholders influence companies to hire more women for their boardrooms?

But are shareholders convinced that women business leaders make just as good decisions as men? A new study says no. And that certainly is the public’s business.

Penalizing Companies with Women in the Boardroom

A study published this summer in the British Journal of Management, “Investing with Prejudice: the Relationship Between Women’s Presence on Company Boards and Objective and Subjective Measures of Company Performance” showed that companies on the FTSE 100 with greater boardroom diversity were penalized compared with companies with fewer women on their board of directors.

While “objective accountancy-based measures of performance” showed that women in the boardroom did not negatively impact companies, “there was a negative relationship between women’s presence on boards and ‘subjective’ stock-based measures of performance .”

The study continues:

“Companies with male-only boards enjoyed a valuation premium of 37% relative to firms with a woman on their board. Results support claims that women are found on the boards of companies that are perceived to be performing poorly and that their presence on boards can lead to the devaluation of companies by investors. Yet the findings also indicate that perceptions and investment are not aligned with the underlying realities of company performance.”

If women are contributing to a devaluation of business, it’s not the fault of their business acumen, or decision making skills. It’s because public perception of female leaders causes shareholders to value those companies less.

Holding Back Exceptional Women

Focusing on market value, rather than company performance, is creating yet another glass ceiling women have to break through. It’s not simply an internal glass ceiling within the company. It’s a glass ceiling created by those outside. As Dr. Sasha Gilbraith recently wrote in the Huffington Post:

“But maybe market value isn’t a good measure. After all, market value is a somewhat subjective measure involving expectations of firm performance in the future. [The study mentioned above] found investors systematically penalized companies with at least one woman on the board, since all-male board member companies commanded a market value 37 percent higher than the more female-forward firms. However, when those researchers looked at other measures such as Return on Assets and Return on Equity, the women-populated boards did better than those that were exclusively male.”

Public expectations of women are not aligning with their performance – that is, women are doing a better job than expected, and in the long run, will suffer anyway. If companies keep being penalized by shareholders for having exceptional female leaders, all professional women will be kept from the top, as they will be seen to drive down market value of their company, regardless of their superlative skill sets.

If companies do not feel compelled by the public – their shareholders and their customers – to put more women in leadership positions, especially qualified ones, do you really think they will make the decision on their own? And considering this new study, the public doesn’t seem to value women leaders either.

This is a serious cultural problem, and it’s a sign that we’re living in a seriously sexist society. It’s easy to vilify corporate executives for keeping women out of leadership positions, but when the villains are public stakeholders, where do you point the finger?