Investors question whether their importance is lost by female focused boards
Corporate boards are committed to increasing gender diversity but a new report says that – in financial terms – there can be a negative to having a more representative governance.
It says that investors perceive a company having more women on the board as a sign that the firm is more committed to diversity than to shareholder value.
The research is published in INFORMS journal Organization Science and was authored by Isabelle Solal and Kaisa Snellman, both of French-based business school INSEAD.
They looked at 14 years of panel data from US public firms and saw that firms with more female directors were penalized.
“Firms that increase board diversity suffer a decrease in market value and the effect is amplified for firms that have received higher ratings for their diversity practices across the organization,” said Solal.
“If investors believe that female board members have been appointed to satisfy a preference for diversity, then by increasing board diversity, a firm unintentionally signals a weaker commitment to shareholder value than a firm with a nondiverse board,” added Snellman.
The report, “Women Don’t Mean Business? Gender Penalty in Board Composition,” suggests that firms should ensure that appointments are framed correctly to reassure shareholders of corporate goals.
“Our results imply that when additional information on the firm’s preferences is available, the market relies on that information in order to lessen the uncertainty surrounding the board diversity cue. Additional information may come from observing other choices the firm makes, notably in terms of diversity policies,” continued Snellman.
And they say that, over time the perception that female board members are there for any other reason than their ability will fade.
New Research Shows the More Women on a Company’s Board, the More Market Value is Lost https://t.co/TdQNPIBxmV #ORMS #analytics pic.twitter.com/tuN9vibEfC
— INFORMS (@INFORMS) November 13, 2019
