What role does company size play in the connection between board gender diversity and company performance?
Mohsni and Shata examined 371 Canadian corporations listed within the S&P/TSX Composite Index from 2010 to 2019 and used several measures of board gender diversity in addition to return on assets (ROA) and return on equity (ROE) as measures of company performance.
Your conclusion? Smaller is best.
Company size is the important thing to effective board diversity
Mohsni and Shata’s results show that the larger the corporate, the smaller the positive relationship between board gender diversity and company performance. They also found that female directors have a greater impact on the performance of smaller corporations than their larger counterparts and suggest that smaller corporations may provide a greater environment for female directors to comprehend their potential.
These results may explain the contradictory results of previous studies on gender diversity and organizational performance. They indicate that the advantages of board gender diversity could also be limited for some corporations and that the context of a corporation must be taken under consideration to higher assess and exploit the advantages of gender diversity.
That company size can reduce the added value that board gender diversity brings to performance implies that larger corporations have to make higher use of the talents, knowledge and concepts of their female board members. Such corporations may have to rethink their organizational structures and communication methods to enable higher board-level discussions, higher decision-making and higher integration of ladies directors.
“Practicing investment managers and analysts interested in gender diversity and good corporate governance should look to smaller companies with high diversity initiatives,” Mohsni said. “They can also pressure larger companies to create work environments that allow female directors to achieve their highest potential, because female directors are good for the bottom line.”
The value that board gender diversity adds to performance is strongest within the financial services, consumer goods, utilities and real estate industries, based on the study. In industrials, the effect is negative and significant. The results also suggest that the moderating negative effect of size is strongest within the financial services, consumer goods, utilities and real estate industries and that the negative correlation between board gender diversity and industrial performance is much more pronounced in larger organizations.
Make changes, not empty guidelines
Mohsni and Shata also found that measures to extend gender diversity on the boards of huge corporations can sometimes be detrimental to performance. Women who’re added to boards on account of enforcement of policies or quotas could also be perceived as less competent or less qualified because they’re perceived to come back from a smaller candidate pool. This, in turn, may impact the effectiveness of those initiatives.
For example, since 2014, the Ontario Securities Commission’s “comply or explain” policy on board gender diversity – which requires corporations to annually disclose the number and percentage of ladies on boards – has had a negative impact on the connection between board gender diversity and the Firm performance , and the moderating effect of firm size remained even after the rule was implemented.
While Mohsni and Shata’s research was limited to the Canadian context, institutional and cultural systems are necessary influences on board gender diversity and performance dynamics, and due to this fact cross-national studies contribute to our understanding.
The authors imagine that there continues to be much room for further research on this area. Their report only considers gender diversity, but ethnicity and age, amongst other aspects, may also influence company performance, and company size can moderate this influence. Furthermore, Mohsni and Shata deal with financial performance metrics, but note the growing importance of non-financial performance metrics – reminiscent of environmental, social and governance (ESG) criteria – and suggest that these could also be worthy of further study.
Balancing corporate commitments with success
Indeed, boards of directors today are increasingly chargeable for corporate social responsibility and sustainability issues, and regardless that a growing variety of publications indicate that the inclusion of female board members can influence various board decisions, the role of company size in such contexts will not be well understood and requires further evaluation.
Chris Guthrie, CEO of Hillsdale Investment Management, the award’s co-sponsor, said Mohsni and Shata’s research shows that analysts have to measure the advantages of diversity as fastidiously as ROA and ROE, and maybe develop a return on diversity (ROD). should. metric.
Of course, there are different views on the impact of gender diversity on performance. Some suggest that this might contribute to a greater understanding of the market and a broader view of the business environment and improve an organization’s fame. On the opposite hand, some imagine that the more diverse a corporation’s perspectives and capabilities, the harder it may be to administer, reach consensus, and make decisions.
Given these conflicting theories, the impact of board diversity on corporate governance and shareholder value requires the form of precise testing and evaluation demonstrated in Mohsni and Shata’s research.
If you liked this post, don’t forget to subscribe.
Photo credit: ©Getty Images / Thomas Barwick
