Board gender diversity: some thoughts

Having flu means I have just enough energy to read Tweets, anything longer requires too much concentration. And having a befuddled brain is not conducive to clear articulation of ideas but it's time I wrote something about board gender diversity, as well as collecting material for the literature review I have been planning for more than a year and harrumphing about what I see as misleading tweets about the issue. Here are some thoughts.

The debate, if it can be called that, about board gender diversity is now focusing on how to get more women on boards, not why this should be a sensible objective.The Davies review asserted that the business case was proven: women on boards improve corporate performance. But the evidence is very mixed. The authors of academic studies which identify a correlation between board gender diversity and various measures of performance are generally careful to note the limitations of their studies: correlation is not causation and the study may relate to a very specific context and not be generalisable. Media reporting of such studies often ignores such caveats. Policy makers and regulators are also prone to reviewing evidence selectively: Davies did not present a thorough review of the available research, possibly because it is scattered through various disciplines.

But why are the other arguments for increasing board diversity (in all forms) not widely discussed? There are undoubtedly good social and moral arguments to be made. US legal scholars have highlighted this: see for example the paper by Lisa Fairfax at http://www.nclawreview.org/documents/89/3/fairfax.pdf

Whether consciously or unconsciously, those who are pushing for change have chosen to present only the business case: is this because they see this as the best way to influence men, using the type of discourse with which they think men are most comfortable? It doesn't seem to be working too well.

The political aspects of the debate may be obscured by this focus on the business case. Viviane Reding and Angela Merkel, for example, are astute politicians who happen to be women: the board diversity issue provides them with a convenient platform. (I wonder how Margaret Thatcher would have positioned herself on this issue? Perhaps more interestingly, why wasn't it an issue in her day?) The issue also fuels the political ambitions of those who purport to be supporting male interests in the face of feminism.

One important effect of the Cadbury Code was to begin to make prescriptions for board composition acceptable. The consequences of this are still playing out. Although there was some initial resistance, board structures in large public companies have changed significantly over the last twenty years out (it's worth noting that current board structures are looking remarkably like the two tier boards that Cadbury critics were so afraid of, but that's a story for another blog) and the role of the independent non-executive director has become firmly embedded in the corporate governance architecture. But the notion of independence in this context is very problematic. Independence of connection which can be objectively demonstrated is a poor proxy for independence of mind which is the real goal. And the jury is still out on whether an independent board is always a good thing: see, for example, Bhagat and Black's study at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=133808

The gender diversity of a board is very easy to measure. But conflicting evidence is emerging as to whether gender diverse boards do result in all the benefits claimed for them. Does diversity of board composition promote diversity of thinking? It's easy to trot out mantras like "One is a token, two is a presence, three is a voice" but we are short of evidence as to how that voice influences board behaviour.

Is it cynical to sense an implicit expectation that boards need "good" women to restrain "bad" men, with gender providing some sort of innate distancing, just as independence is expected to assist NEDs in monitoring executives. In 1993, John Corrin, then chief executive of Allied Textiles, compared the  Cadbury Committee's report to "… a script for a ‘soap’ where the non-executive director is cast as saint, the auditor is a tarnished guardian angel, and the executive director is a villain."

 (Corrin, J. (1993) ‘A Blatant Slur on Executive Directors’ Integrity.’ Accountancy, April, 81)

However much people try to focus on the apparently objective business case, diversity remains a much more emotive subject than independence.

This is the sort of journalism that I find so frustrating:

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/10390970/Diversity-is-the-key-to-superior-performance.html

The headline "Diversity is the key to superior performance" is completely misleading: the article has interesting things to say about other aspects of boards. But my goodness - nine children! Did she have to mention that? To my mind, it undermines the whole tenor of the discussion.