The Hindu Business Line : Women at the top make a difference

WOMEN have served all these centuries as looking glasses possessing the power of reflecting the figure of man at twice its natural size, said Virginia Woolf. Rather than reflect on such reflective powers of women, here is a paper from three researchers, focussing on women CEOs in firms, and on boards as directors. `Do Women in Top Management Affect Firm Performance?' ask Nina Smith, Valdemar Smith and Mette Verner, in a study posted on www.ssrn.com.

As we know, there has been an increasing focus on the gender of top executives and boards of directors of firms; but "the proportion of women reaching top positions is still very low in most countries," point out the authors.

Governments have intervened to set right the ratio and thus introduce diversity. For instance, Norway mandates that in large firms "at least 40 per cent of the members of the boards of directors must be women", and I'd suggest that such a quota may be something for activists here to lobby for.

Diversity in management, as a concept, hasn't enjoyed any unmixed support. Thus, on the one side, are people who claim that diversity improves the image of the firm and results in "positive effects on firm performance and shareholder value" even as "the positive image has positive effects on customers' behaviour". But detractors are quick to point out: "If a heterogeneous board produces more opinions and more critical questions, this may be time-consuming and may not be as effective as a more homogenous board of directors, especially if the firm is operating in a highly competitive environment where the ability to react quickly to market shocks is an important issue."

The trio cite a 1997 analysis of `Shrader et al' of 200 large US firms where the researchers were "unable to find any significantly positive relationship between the percentage of female board members and firm performance (measured by ROA and ROE)" and it seems they even found `significantly negative relations' in some cases! As if to counter, `Catalyst (2004) and Adler (2001)' found positive correlations between `female-friendly' US Fortune 500 firms and the performance of these firms, one learns. Which only makes me wonder if there should be some quota on the reporting of findings too, between the positive and the negative.

The paper on hand studies 2,500 Danish firms over 1993-2001, and applies `four alternative measures' or ratios, viz. gross value added/net turnover, profit on ordinary operations/net turnover, ordinary result/net assets, and net result after tax/net assets.

I can save you from the equations, but there are these Z-variables or valid instruments that need explanation: "We have individual information on all CEOs employed in the selected firms and the spouses of these CEOs. We use the average length of education of the spouses of the other CEOs in the firm as an instrument," state the authors.

"Our hypothesis is that CEOs who are married to well-educated spouses (in most cases these are wives) are supposed to be more positive and have a less traditional view on the competence of female CEOs, implying that they are more willing to hire and accept a woman in their own firm as compared to other CEOs who are married to lower educated spouses." I guess you'd understand this if you belonged to the CEO league!

But here's something easier to understand: qualification. In 1993, three out four of all women CEOs (74 per cent), and 59 per cent of the men CEOs in the authors' sample didn't have a theoretical education; but by 2001, the numbers fell to 46 per cent and 44 per cent, respectively, indicating a higher level of qualification.

"Education is an admirable thing, but it is well to remember from time to time that nothing that is worth knowing can be taught," says Oscar Wilde. Yet, the results of Nina et al's research show that "the positive performance effects are mainly related to female managers with a university degree while female CEOs who do not hold a university degree have a much smaller or insignificant effect on firm performance." One learns from the paper that Danish law requires that a certain number of board members be selected among the staff in firms with more than 35 employees, with the number of staff representatives depending on the size of the board. And they've fared well, as per the study: "Female members of boards of directors elected by the staff seem to have positive effects on firm performance."

But the authors hasten to add that this positive effect is absent in the case of the other female board members, who have family ties to the owners.

Isn't that a good case for more employee participation in management diversity?

SayCheek@TheHindu.co.in

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