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The benefit from gender diversity – just a delusion?

(c) Mike BuchananThe call for more diverse board members and leadership-teams is on everyone’s lips. It is said that companies are able to perform better, be more innovative and will outperform their peers if they increase their diversity. These arguments – at least the gender diversity aspects –are massively challenged by Mike Buchanan, author of the book “The Glass Ceiling Delusion: The real reasons more women don’t reach senior positions”

Mike Buchanan looked at some studies and surveys and found out, that they were not able to find causal links between the higher proportion of women on management committees and a better performance of these companies. Furthermore he found studies which detected deterioration in performance when a women’s quota is targeted and another study that stated that younger executive teams as well as a higher proportion of female executives lead to higher risk taking. Thus the message of Mike Buchanan is clear: The proclaimed benefit of gender diversity is a delusion!

Is he right? If we consider the arguments in more detail theses statements are not as profound as it seems at the first moment but a very one-sided and reduce view of the cited studies. For example one study he quoted proved that companies with a higher proportion of women on their management committees are the ones with the best performance. The poorer corporate performance again could also be due to the inexperience of the younger board members and not attributable solely to the sex. Anyhow – are there facts and figures, studies or surveys which show a significant and causal link, that companies with men in the top management steadily make more profit, perform better or generate more revenues than companies with mixed leadership teams?

With these arguments of delusion in mind another call is even more interesting. Also recent research of McKinsey shows, that companies with diverse executive boards enjoy significant higher earnings and returns on equity. As here only gender and international differences are considered Dr. Gregersen, Professor of Leadership at the Business School INSEAD, even goes further and recommends diversifying diversity.  He believes that even better results can be made – especially concerning the innovation capacity – when not only (or mostly) gender and culture are focused but every kind of diversity is promoted. As in today’s fast moving environment the management teams of companies need to generate innovative or even disruptive strategies, different perspectives, various experiences and open communication which reflects different opinion is needed.

 

Delusion or a further need to diversify – what do you think?

 

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3 Comments

  1. 07/04/2012 - Author: Mike Buchanan

    Thank you for your comments on my book. I refer you and your blog visitors to the following blog posted on the website of The Institute of Economic Affairs (London):

    http://www.iea.org.uk/blog/the-gender-diversity-delusion

    Have a nice day.

    Mike Buchanan
    CAMPAIGN FOR MERIT IN BUSINESS

    http://c4mb.wordpress.com

  2. 07/04/2012 - Author: Mike Buchanan

    I’ve just looked at the McKinsey report you mention, and (as expected) it’s as flawed as all the others presented as showing the financial performance benefits of greater gender diversity. From the report:

    “We acknowledge that these findings, though consistent, aren’t proof of a direct relationship between diversity and financial success. At high-performing companies, the board or CEO may simply have greater latitude to pursue diversity initiatives, and other management innovations may contribute more directly to superior results.”

    We are being led to confuse correlation with causation. It’s like concluding that because rich men often marry beautifaul women, those women CAUSE those men to become rich. No wonder beautiful women are in such demand…

    I’ve been looking for evidence of a positive causal link between ‘improved’ gender diversity and superior corporate financial performance for three years, and I have yet to find any. The only evidence I can find is a negative link (see my IEA blog). Maybe your readers can provide evidence to me? Thank you.

    Mike Buchanan
    CAMPAIGN FOR MERIT IN BUSINESS

    http://c4mb.wordpress.com

  3. 07/05/2012 - Author: Michael Klein

    I sometimes wonder how long it will take for people looking at a tree calling the tree a tree. The effect of Gender Diversity in the boardroom is like a tree – It is proven to harm companies not to do companies any good. So we may well skill all this ideological junk and revert to the facts, calling a tree a tree that is.

    The proof of quota’s harm is here:
    http://webuser.bus.umich.edu/adittmar/NBD.SSRN.2011.05.20.pdf

    Now lets turn to the McKinsey Study: Freshmen at a university learn that there is a difference between correlation and causation. When you find a correlation between diversity in the boardroom and say ROI, that does not mean Gender diversity CAUSED a good ROI. To claim that is does is called a fallacy of affirming the consequence, it is this very fallacy because one can quite easily argue that it is especially successful companies (with a good ROI) who give in to CSR-pressure exerted by the UN, EU, their national government and include more women in their boards. Hence, there is no need to look any further in this dubious study by McKinsey, but if you do, you will find a sophisticated attempt to avoid the very question of causation.

    The next study, usually mentioned when it comes to the supposed merits of Gender Diversity in the Boardroom is a study by the Finnish EVA. I’ve linked and discussed the study here:
    http://sciencefiles.org/2011/09/23/von-natur-aus-besser-der-biololgismus-hinter-der-frauenquote-in-aufsichtsraten/

    When you read this brief “study” carefully, you will not only find a number of methodological errors, but also come to the conclusion that the only argument the authors have left in their arsenal for advancing women’s share in Boards is that they are women, which boils down to the rather crude statement that it is better to include more women in boardrooms, because it is better to include women in boardrooms. In fomral Logic we call that a tautology and subsume it under the “no-content” statements.

    So as far as science, and not ideology is concerned, there is no way around the fact that a women quota in boardrooms harms a company and does it no good. How could it be different? Anyone heard of something like experience. If the logic behind the women quota would be correct, you could place a newborn child in a boardroom and it would have a positive effect because of the increase in diversity. Hence, I strongly suggest to read Mike Buchanan’s book with an open mind. It will open eyes and avenues of thinking.

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