Is EU Justice Commissioner Viviane Reding a liar, incompetent… or both? The question occurred to me today as I read the transcript of a speech she gave just two weeks ago to the Harvard Club (Belgium) in Brussels. A link to the transcript:
In Mrs Reding’s speech we find gems such as the following:
First of all, there is a clear business case. Numerous studies – by Crédit Suisse, McKinsey, Deutsche Bank, Ernst and Young and others – show that companies with more women in top management enjoy better governance and financial performance. The McKinsey study has, for instance, shown that companies with women on their boards outperform their men only rivals with a 42% higher return in sales, 66% higher return on invested capital and 53% higher return on equity. Or take the Crédit Suisse study which shows that, over the past six years, companies with at least one female board member significantly outperformed those with no women on the board in terms of share price performance.
How could she have insulted her audience – presumably including senior business people – with this utter nonsense? As we’ve reported on this website, the Crédit Suisse report makes no claims of the causal link Mrs Reding clearly implies. Indeed that report states (p.17):
There is a significant body of research that supports the idea that there is no causation between greater gender diversity and improved profitability and stock price performance. Instead the link may be the positive signal that is sent to the market by the appointment of more women: first because it may signal greater focus on corporate governance and second because it is a sign that the company is already doing well.
Adams and Ferreira (2009) looked at the impact of greater gender diversity on 1,939 US stocks between 1996 and 2003. On the face of it, their data showed positive gender diversity effects. However, using two different techniques to handle reverse causation, they found statistically significant negative effects on profits and stock value following the appointment of women to the board.
Farrell and Hersch looked at 300 Fortune 500 companies between 1990 and 1999 and showed that firms with strong profits (ROA) are more likely to appoint female directors but that female directors do not affect subsequent performance.
Mrs Reding is also misleading about McKinsey reports. Not a single McKinsey report, to the best of our knowledge, claims a causal link. Most of their reports concede that an explanation for any apparent correlation might be that stronger-performing companies can better afford to indulge in initiatives such as ‘improving’ gender balance in their boardrooms.
Let’s finish with Mrs Reding’s breathtaking claim, ‘…companies with women on their boards outperform their men only rivals with a 42% higher return in sales, 66% higher return on invested capital and 53% higher return on equity.’ Again, this is correlation being cynically misrepresented as causation. Catalyst, the American feminist campaigning organisation which made such claims in its ‘Bottom Line’ report series, stopped making claims of positive causal links in September 2011. Why is Mrs Reding continuing to use Catalyst data in such a misleading way, and continuing to misrepresent studies? We ask again: is she a liar, incompetent… or both? We should be told, given that as EU taxpayers we’re collectively financing her very substantial salary and perks, and we have no means of voting her out of office.