The relationship between board diversity and firm performance

August 1, Purpose This appendix does not cover the broad range of benefits of workplace diversity and inclusion; rather, it is a supplement to Quick Take:

The relationship between board diversity and firm performance

All relevant data are within the paper Table 2. Abstract In recent years, there has been an ongoing, worldwide debate about The relationship between board diversity and firm performance representation of females in companies.

Our study aimed to meta-analytically investigate the controversial relationship between female representation on corporate boards and firm financial performance. Following a systematic literature search, data from 20 studies on companies published in peer-reviewed academic journals were included in the meta-analysis.

Similar small effect sizes were observed when comparing studies based on developing vs. The mean board size was not related to the effect sizes in studies. These results indicate that the mere representation of females on corporate boards is not related to firm financial performance if other factors are not considered.

We conclude our study with a discussion of its implications and limitations. Introduction Advancing gender equality and female representation in corporate governance has increasingly become the focus of societal and political debates in various countries [ 1 ].

The financial effects of increased female representation on corporate boards may crucially determine if, and how, regulations to promote females to higher positions are implemented, because pursuing financial success is an innate characteristic of every company.

While a number of scientific studies have investigated the relationship between gender diversity and firm financial performance, their conclusions are equivocal [ 2 ], [ 3 ]. These empirical discrepancies have led to a lack of conclusive evidence about the relationship between increased female representation and firm performance, creating uncertainty for policy makers, CEOs, and investors around the world.

Owing to the conflicting evidence from primary studies, systematically summarizing the existing data on the topic in a quantitative meta-analysis has merit. While our general research question is similar to that of Post and Byron [ 4 ], the methodological and analytical approach differs substantially between the two analyses.

Our study aims to investigate the relationship of interest with a different, more rigorous and controlled methodological approach, and subsequently compares the results of the two meta-analyses. Investigating this relationship in a different sample and with different operationalizations of the variables compared to Post and Byron [ 4 ] is especially important, because, in their analysis, the overall mean weighted correlation between female participation on boards and firm performance was very small only marginally different from zero.

The relationship between board diversity and firm performance

Thus, this paper investigates the general relationship between female representation and firm performance using a new and different methodological approach, highlights our additional contribution to the literature, and compares the similarities and differences between the two analyses.

Literature Overview A board of directors monitors the activities of an organization or company. It sets the corporate strategy, appoints and supervises senior management, and functions as the main corporate governance mechanism. The role of the board in determining the corporate strategy therefore influences firm performance.

Since diversity is often considered a double-edged sword e. Along these lines, a meta-analysis by Webber and Donahue [ 3 ] examined the effects of diversity on work group performance in a sample of 45 effect sizes. Further, primary studies also do not show a clear consensus on whether gender diversity benefits or disadvantages firm performance [ 7 ], [ 8 ].

At first glance, the relationship between female representation on corporate boards and firm financial performance shows a similar pattern to that of the general diversity-performance relationship, being either positive [ 9 ], negative [ 10 ], or non-significant [ 11 ].

Thus, it remains unclear if increased female representation on corporate boards is associated with firm performance, and, if so, in which direction. Advocates of greater female representation on corporate boards usually rely on two lines of arguments: The former argues that women should be considered for leadership positions for equality reasons.

The aim is therefore not directly to increase performance, but rather that greater female representation is considered a positive and just result in itself [ 13 ].

The business case for diversity holds that if a board comprises heterogeneous directors, diversity leverages financial growth and success [ 12 ], indicating that a higher proportion of females could be related to better firm performance.

A final outcome, not explained by either of the cases above, would be a negative relationship between a higher proportion of females on boards and lower firm performance. The aim of this article is to summarize the already existing quantitative evidence and attempt to explain the results in light of these cases.

Positive Effects of Increased Female Representation on Firm Performance The business case for diversity holds that diverse team members improve corporate governance by introducing broader knowledge bases and experiences [ 12 ], [ 14 ]. Accordingly, the cognitive resource model suggests that as gender diversity in groups increases, the available cognitive resources increase as well [ 15 ], [ 16 ].

If used effectively, these diverse perspectives can contribute to a more thorough search for alternative solutions to problems because they introduce new perspectives to the boardroom [ 17 ]. These diverse perspectives also foster a critical analysis of complex problems, prevent premature decision-making [ 5 ], [ 6 ], [ 18 ], [ 19 ], and develop creative and innovative solutions [ 20 ].

Hence, increased female representation on corporate boards should improve firm financial performance through the diverse perspectives introduced to the boardroom. Another essential argument in support of the business case for diversity is that women introduce useful female leadership qualities and skills to the boardroom.

These include, for example, risk averseness and less radical decision-making [ 21 ], [ 22 ], as well as more sustainable investment strategies [ 23 ].The answer to question bothering on the relationship between board diversity and firm performance using mediating variables reputation and innovation was striking as the authors were of the opinion that “increasing diversity on the board leads to more varied ideas, perspectives and networks” (Miller and Triana ).

Mar 12,  · The push for diversity has created discomfort for some directors.

managing diversity linking theory and practice to business performance change agenda. Diversity Hub is a Centre of expertise with a mission to help organizations become sustainable through inclusive culture. We review emerging global best practices, carry out local research to understand market need; facilitate customized application of global tools, build skill inventory, develop competencies of practitioners, produce publication and . We all have a purpose at KPMG. Explore yours. KPMG is a firm with a rich history of doing great work and making a difference. Individually and as a firm, we inspire confidence and empower change in so many different ways.

At a recent director education conference at which I was a speaker, I witnessed an argument between an institutional investor and an attendee who objected strenuously to the investor's push for board diversity. 9 After the attendee. Meta-analyses linking team gender diversity to team performance (e.g., Bell et al., ) reach much the same conclusion as meta-analyses linking board gender diversity to firm performance — that is, the relationship between team gender diversity and team performance is tiny.

The dynamic relationship between CEO duality and firm performance: The moderating role of board independence. Five-year TSR as of Dec.

Why KPMG? Culture, Benefits, Your Career | KPMG Campus

31, vs. one-year total realized CEO pay, as reported in proxy statements. Source: MSCI ESG Research. There is a higher degree of correlation between pay and performance in this instance than for the year period, where little exists.

Charles Harmon, Board Chair Senior Manager, Administration Division American Honda Motor Co., Inc. Charles A. Harmon is the Senior Manager of the Administ.

CEO Advisory Services | CEO Succession Planning | Russell Reynolds Associates