Penalty Incurred in Improving Gender Diversity

In one study, which looked at 14 years of data (1998-2011) for publicly-listed US firms, increasing a board’s gender diversity was found to have no statistical impact on measures of a firm’s performance. But, it did have a negative impact on the firm’s market value.

A second study revealed that firms demonstrating a commitment to diversity, as well as social welfare initiatives, also saw a subsequent decline in market value.  

The third, a study of experimental design, led to the conclusion that firms appointing female directors, as opposed to male directors, are seen by investors to be more orientated towards social values than profit. This remained the case even when the male and female directors were rated as being equally competent in their roles.  

The implication to all these findings is that working to improve an organization’s gender diversity at board level changes the way in which investors, and the market, perceive a firm, culminating in what the authors refer to as a ‘gender penalty’.

In this, the paper argues, is an underlying assumption made by investors that a single appointment can have a significant effect on a company’s profits, something the INSEAD authors consider unlikely. 

However, a bigger concern is identified as being “the automatic evocation of the concept of diversity whenever a woman is appointed to a senior leadership position.” In other words, that addressing gender diversity at board level is perceived as being purely a diversity measure and one that cannot possibly also have been made with an equal focus on maximizing shareholder value.

Despite this underwhelming set of findings, the INSEAD coauthors end by saying that they are hopeful this assumption will phase out gradually over time, as female board appointments becomes less and less of an unusual occurrence, arguing that this will “decrease the perception that firms select directors for any reason other than their qualifications”.