Firms with more female directors 'penalised'

Companies that increase board diversity may be shunned by investors and lose millions due to 'damaging' bias

Firms with more female directors 'penalised'

A company with a gender-diverse board of directors is interpreted as a preference for diversity and a weaker commitment to shareholder value, found a new study.

The INSEAD study revealed that one additional woman on the board results in a 2.3% decrease in the company's market value on average, which could amount to hundreds of millions of dollars.

The researchers looked at 14 years of panel data from US public firms and saw that firms with more female directors were penalised.

Isabelle Solal, Post Doctoral Research Fellow at INSEAD added that the penalty is “amplified” for firms that have an organisation-wide commitment to diversity practices.

Fellow researcher, Kaisa Snellman, Assistant Professor of Organisational Behaviour at INSEAD explained the behaviour further.

“If investors believe that female board members have been appointed to satisfy a preference for diversity, then by increasing board diversity, a firm unintentionally signals a weaker commitment to shareholder value than a firm with a nondiverse board,” said Snellman.

READ MORE: IWD 2020: Why are we failing to achieve leadership diversity?

The researchers argue that fostering awareness is the first step in addressing and eliminating “damaging assumptions”.

The paper suggests that over time, just as greater exposure to female leaders has been shown to reduce stereotype bias, the increase in female board appointments should likewise decrease the perception that firms select directors for any reason other than their qualifications.

They suggest firms should carefully frame female appointments and reassure shareholders of corporate goals.

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