Dodgy statistics and wild claims just patronise women

by | Oct 1, 2015 | Corporate Governance, Corporate Governance Debates | 0 comments

Grant Thornton has just published a Report comparing the effect on corporate return on assets (ROA) of having women on an executive board across three countries (UK, US and India). It concludes that such diverse boards cause companies to perform “Materially better”. The report quantifies the economic benefit from having more women executives on boards as “a staggering $655 billion”, boosting GDP by 3%.

Now that’s some benefit just from changing the sex of one board member per company. It sounds too good to be true, doesn’t it? Well, of course, it is. Grant Thornton seems not to have published the full workings behind this claim, but let’s examine what it has disclosed;

  1. The sample size is tiny. It is able to use just 127 of the over 1,000 companies in the top echelons of the three countries to make this dramatic conclusion. The report makes no mention of how the results could be random variation in a small sample size.
  2. It’s a static analysis that compares companies currently with a female executive board director to those without. However, this statistic does not tell you the effect of a company deciding to appoint an extra female (ie a dynamic analysis). The analysis should have tracked the change in performance of companies that did this, in order to conclude that putting more women on boards boosts performance.
  3. The analysis is not comparing all male boards with mixed ones. All but 60 of the over 1,000 boards already have female non-executive directors. There is no gradation reflecting how many females are on each board.
  4. It assumes that correlation equals causation. It may well be that higher performing companies are simply better at attracting high performing female executives. Given the pressure on boards to have more females, and the resulting increased demand for female directors, then it would be logical for women to be able to choose to work for more successful companies.
  5. The report extrapolates the average ROA from just 127 companies to over 1,000. However, if female executives are a source of competitive advantage, then this would of course be nullified if every company had such an advantage.
  6. Somehow, the extrapolated 1,000 companies gain is then turned into 3% GDP growth, worth $655bn. Even if those companies did increase their returns, the report does not explain how they have calculated such a boost to GDP. For example; higher dividends might be remitted abroad; smaller companies would be likely to suffer increased competition from the 1,000; employees might demand a greater share of the profitability; and so on.

So adding 923 female executives would create an extra $655bn in growth. That’s over $700m per female director per year! Maybe they should ask for a pay rise.

More diverse boards may well make more effective teams. We do need more talented women in senior management. But it is very patronising to women to have to argue for this using dodgy statistics and ridiculous economic claims.

Maybe Grant Thornton published this report just as a publicity gimmick. But business is crying out for regulation that is based on real evidence, not political expediency nor ridiculous statistics.