The Returns from Diversity

Generali

I've been looking at gender diversity on boards at work recently and came across the following piece of research today:

https://www.msci.com/www/blog-posts/women-on-boards-global-trends/0263383649

Many institutional investors are increasingly focused on the gender composition of company boards, according to our research. Some studies show significant outperformance by companies with women on boards, though no one can show a direct link between the two. Our latest research shows that companies in the MSCI World Index with strong female leadership (as defined in our paper) generated a Return on Equity of 10.1% per year versus 7.4% for those without (as of September 9, 2015, measured on an equal-weighted basis). We did not find a direct causal link between women directors and better outcomes.

Return on equity is a pretty fundamental measure of the success of a company.

Wealth Warning: Correlation =/= causation.

cells

maybe old men usually dealing with other old men when going into negotiate a deal with a woman give more way and concede better terms because they are women.

CLAPTON

cells wrote: »

maybe old men usually dealing with other old men when going into negotiate a deal with a woman give more way and concede better terms because they are women.

merely as a logical possibility:
maybe there is causation:
more successful companies can afford more female directors

Mistermeaner

Exactly what I thought. Anyone doing well can afford a couple of passengers

purch

Dragged kicking and screaming from the Ice Age into the Stone Age :eek:

michaels

Generali wrote: »

I've been looking at gender diversity on boards at work recently and came across the following piece of research today:

https://www.msci.com/www/blog-posts/women-on-boards-global-trends/0263383649



Return on equity is a pretty fundamental measure of the success of a company.

Wealth Warning: Correlation =/= causation.

Does this mean that shares in companies with female directors trade at a discount?

Generali

michaels wrote: »

Does this mean that shares in companies with female directors trade at a discount?

No because shareholder equity in a company isn't market cap (for the uninitiated, market cap = share price x no of shares issued). The 'equity' part of RoE is assets - liabilities.

NB I am not an accountant and am happy to be corrected.

As a result, women directors can be said to correlate with higher revenues for any given level of equity in a company.

I suppose there are two ways of looking at this: either well run companies include women on the board or boards that include women run companies well.

Generali

cells wrote: »

maybe old men usually dealing with other old men when going into negotiate a deal with a woman give more way and concede better terms because they are women.

NEDs don't negotiate deals and the vast majority of women on boards are NEDs.

The most likely causal relationship that I can see is that women bring a different voice to the table and so enable companies to see a larger part of the picture.

I suspect the same thing would be found if we compared Ivy League only boards vs boards with a more diverse range of almae matres.

princeofpounds

That 'research' is somewhat pathetic.


It doesn't even attempt to adjust for other explanatory factors, which is pretty basic practice amongst even the most lame social science paper.


It is, for example, quite possible that more women are put on the boards of less capital intensive industries (retail, tech, whatever). Higher capital intensity typically driving lower ROE, for example (which is incidentally not remotely a good measure of company performance without any context, as is primarily driven by market structure and business models of industries)


Or that in turn might be explained by the different board representation of women in emerging markets vs. developed markets.


It's not that intellectually far - as it stands - from claims like 'white people tend to be richer so they must be better at generating wealth'.


Personally I am quite happy to see more women on boards, but I think papers like this do a disservice to public perceptions of where 'problems' really lie.


The gender pay gap is a case in point. There is no longer a significant gender pay gap, in the classical sense. Women actually earn very similar amounts to men, on average, before they have children, and similar amounts for the same roles afterwards (the difference in pay being primarily driven by the choice of roles taken, most significantly more women opting for part-time work).


The solutions for the problem of the old style pay gap (pay women more) are entirely different to the remaining gap (get men and women to share childcare evenly, if we even think that's a good idea).


That's why misleading statistics like this are important.

Generali

That sounds a lot like supposition princeofpounds. Have you any research to back it up.

michaels

Generali wrote: »

No because shareholder equity in a company isn't market cap (for the uninitiated, market cap = share price x no of shares issued). The 'equity' part of RoE is assets - liabilities.

NB I am not an accountant and am happy to be corrected.

As a result, women directors can be said to correlate with higher revenues for any given level of equity in a company.

I suppose there are two ways of looking at this: either well run companies include women on the board or boards that include women run companies well.

So companies with women on the board are more highly geared?