House of Lords inquiry’s final report on ‘Women on Boards’

The House of Lords inquiry’s final report on ‘Women on Boards’ has just been published:

121109 House of Lords final report on ‘Women on Boards’

The inquiry was called to respond to Viviane Reding’s threat of legislating EU-wide quotas for women on corporate boards. Given Mrs Reding’s utter contempt for everything sent to far by the British and other governments – including the official DBIS response in May 2012 – we shouldn’t expect this new report to influence Mrs Reding in any way. But hope springs eternal.

The report’s opposition to EU-legislated quotas reflects official government policy, and shouldn’t surprise us. Given that the select committee only took oral evidence from people who are supporters of ‘improving’ gender diversity in the boardroom (‘GDITB’), many of them professionally involved in the initiative, and declined our request to give oral evidence, we also shouldn’t be surprised that the report strongly supports GDITB throughout. We were given a written assurance that equal weight is given to written submissions as to oral submissions, and our written submission pointed to strong evidence that GDITB has a negative impact on corporate performance.

So… equal weight. Let’s see, shall we? We counted a total of 85 references in the report to Cranfield and/or the 30% club, the leading proponents of GDITB in the UK. There are just two references to our own written submission. The first is a rejection of our key argument – that GDITB has been shown to lead to a decline in corporate performance – although no grounds are provided for the rejection. The second reference is, ironically, to one of the key studies (Ahern/Dittmar) which underpins that key argument. You couldn’t make it up.

So far, so depressing. But it would be a mistake to miss a key admission in the report. From the Summary, p4:

The report begins by stressing the benefits that come from a gender-balanced board. A more balanced board will be able to tap into the wealth of available talent in the labour market, provide a broader spectrum of ideas, better reflect a company’s customer base and improve corporate governance. We did not, however, find proven the argument that there is a causal link between more gender diversity on boards and stronger financial performance…

At last, an admission in government circles, in an official report, that there’s no evidence of a positive causal link. (A timely admission, given that earlier this week we had the same admission from Viviane Reding’s private office, an earlier post refers). There is, of course, strong evidence of a negative link – as strong as evidence can be in studies in this field, from longitudinal studies with panel data – but we’ll have to hope that the forthcoming House of Commons inquiry on ‘Women in the Workplace’, at which we’ll be giving oral evidence, will review that evidence.

Also from the Summary, p4:

We do not consider that the Commission has made its case for stronger action in the form of a quota for women on boards. We consider that quotas should not be resorted to until all other options have been exhausted. They generate negative perceptions amongst women and business leaders and do not address the root causes of inequality. Quotas should be used only where business has shown itself unwilling to change its ways.

We have a reference here to the government’s ‘voluntary’ business-led approach, which is official policy. It’s the same argument used by the mugger who threatens you with violence if you don’t hand over your money ‘voluntarily’. On p12 we come to the following assertion:

Some studies point to the fact that greater diversity, particularly of gender, can have a positive effect on corporate performance.

‘Some studies’ refers, of course, to studies seeking to misrepresent correlation as causation. The cited sources for this remarkable (and, of course, utterly erroneous) statement are the following:

IMA, Fawcett Society, An Inspirational Journey, Professor Sylvia Walby, Aviva, Arlene McCarthy MEP, Mary Honeyball MEP, NEST, European Commission, Q55 (Lord Davies of Abersoch), Q48 (Jonathan Rees, GEO), Q113 (Joanne Segars, NAPF), Q246 (Helena Morrissey), Q298 (Jo Swinson MP)

So, the ‘usual suspects’ then. We’ve challenged many of these organisations and individuals to cite even one robust study showing the ‘positive effect on corporate performance’, and collectively they’ve supplied nothing. However, things pick up on pp 12/13:

The last of the stated business benefits [C4MB: a positive effect of gender diversity on corporate performance] is the most contentious. The idea of a demonstrable financial benefit derives from studies by the consulting house McKinsey and Catalyst, a research and advocacy organisation for promoting female career development, which suggested a correlation between women’s representation at board level and the financial performance of companies worldwide. These assertions have been reiterated in subsequent studies and were drawn upon in evidence by the Government. However, Professor Susan Vinnicombe OBE, Director of the International Centre for Women Leaders at the Cranfield University School of Management, noted that Catalyst and Cranfield had now renounced this line of argument owing to the difficulty of inferring causation from the data.

We do not find the case for a causal improvement in the financial performance of businesses from increased female representation, in terms of improved revenues or returns on investment, compelling in the form advanced at present. There are too many other factors to take into account for diversity to be disaggregated reliably, and the fact that the case has been renounced by some of its most notable former proponents is indicative of its weakness…

We come on to an extraordinary statement on p13:

It should be stressed that we reject any suggestion that improved diversity would be to the detriment of company performance, as was argued in some submissions we received.

The (written) ‘submissions’ cited here were from ourselves, Michael Klein and Ray Russell. Both we and Michael Klein (now this campaign’s Research Director) cited two studies which show a negative impact of GDITB on corporate performance, the Ahern/Dittmar study and the Deutsche Bundesbank study. The committee is, therefore, implicitly rejecting not our ‘suggestion’, but these studies. We might reasonably ask, on what grounds is the committee rejecting them? Later today I’ll email the chair of the committee, Baroness O’Cathain, to ask this very question. I’ll copy the other peers on the committee for whom I have email addresses.

My hunch is that Baroness O’Cathan (if she responds) will employ the standard criticism of studies showing the negative impact of GDITB on Norwegian businesses, that the quotas were legislated, and the UK has not yet adopted legislated quotas. This ignores, of course, the obvious point that the threat of quotas has caused a more than fourfold increase in the proportion of new FTSE100 directors who are women in just two years (from 13% to 55%), and all the women appointed in 2012 have been as non-executives. The appointment of women as non-executives is the same ‘solution’ that was adopted by Norwegian companies in the face of legislated quotas. The ‘solution’ still led to declines in corporate performance, as Ahern/Dittmar and others show.

Ironically, given the above, the report recognises the existence of the Ahern/Dittmar study. On p.22 we find:

There were also concerns that quotas would lead to practical problems, with attention drawn again to the experience of quotas in Norway. Some cited research indicating that the quotas there had led to a reduction in shareholder value…

The ‘cited research’ is the Ahern/Dittmar study. No mention is made of the Deutsche Bundesbank study.

2 thoughts on “House of Lords inquiry’s final report on ‘Women on Boards’

  1. Mike,
    thanks for this strong post!

    I have just one comment to make:

    “It should be stressed that we reject any suggestion that improved diversity would be to the detriment of company performance, as was argued in some submissions we received.”

    Funny thing to do, reject strong empirical evidence. What will they do next, declare that Earth is flat after all and sun revolves around Earth or that instead of a big bang there has been some God who switched on the light (that was before he flooded the whole place)? The only thing this statement tells is that the members of the Committee are without any knowledge of scientific standards.
    Oh Lords!, We do have these standards, some studies are good studies according to these standards and some studies are rubbish. Studies that use panel data are usually good scientific studies or have a higher probability to be just that. Studies that are based on panel data, studies that use quasi-experimental designs are the pinnacle of what can be achieved in social sciences. As such, Ahern and Dittmar reach Mount Olympus in science, because their results are found in a quasi experimental environment and are based on panel data.

    You cannot reject these results, because they don’t fit with your narrow mind. All you can do is show to the world how limited your scientific capabilities are. And this is the final point, I want to make: What is the use of a Committee, in which people without proper scientific knowledge gather to assess the state of the art of a scientific problem and do so by inviting a bunch of people who can pretend being more informed because they hold a position at a University (of course among the blind the one-eyed is king!), but are as ignorant as the Lords, when it comes to criteria of validity and reliability, criteria used in the scientific world as a measure for the soundness of a study, both words, by the way, are nowhere to be found in the entire report and I dare say, this is not surprising. But I must say, it is quite astonishing that ignorant people think they can reject sound scientific evidence. It reminds me of a remark to be found in the work of Schumpeter, in which democracy, if not based on proper reasoning and sound evidence, is predicted to become a race to the bottom, where the bottom is marked by being without any knowledge, but firm in and proud of ones ignorance.

  2. Michael, many thanks. I’ve emailed Baroness O’Cathain (likewise most of the peers on the committee) asking for the basis on which they rejected the strong evidence we cited. I look forward to publishing her response, if she ever sends one.

Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s