Board Diversity: Should We Trust Research to Inform Policy?

• DOI: http://doi.org/10.1111/corg.12092
• Date: 01 March 2015
• Author: Daniel Ferreira
• Published date: 01 March 2015

Commentary

Board Diversity: Should We Trust Research to

Inform Policy?1

Daniel Ferreira*

Research on board diversity has received much attention

recently. This is a natural consequence of the fact that

female representation on corporate boards has risen to the

top of policy agendas. It is, however, far from obvious

whether and how such research is useful for policy discus-

sions. This is our own fault. We, the researchers, often do not

explain what we are trying to achieve. We are not always

clear about the limitations of our work, and we often tolerate

misinterpretation of our work by policymakers and the

media.

In this short piece, I summarize what we have learned

from the board diversity literature, and what is useful (and

not useful) for policy debates and design. I organize my

comments around three questions.

WHAT CAN WE LEARN ABOUT DIVERSITY

FROM STUDIES OF BOARD DIVERSITY?

The answer is: not a lot.It is very hard to disentangle “diver-

sity effects” from the effects of other individual and group

characteristics that correlate with measures of diversity.

Board directors, as a group of people, are highly non-

representative of the general population. For example, there

is no reason to believe that female board members have the

same personality traits as those observed in the general

population. Thus, f‌indings of “gender effects” on boards are

unlikely to be generalizable beyond the board. This problem

is an example of what some researchers call lack of external

validity.

External validity issues notwithstanding, we can still learn

something. In particular, we may learn about what kind of

behavior survives many rounds of selection and self-

selection. As an example, consider the evidence that, in the

general population, women are more risk-averse than men

(see, e.g., Sapienza, Zingales, & Maestripieri, 2009). Because

of selection, it does not follow that female directors should

also be more risk-averse than male directors. In fact, in a

sample of Swedish directors, Adams and Funk (2012)

f‌ind that female directors are more risk-loving than male

directors.

WHAT CAN WE LEARN ABOUT

CORPORATE GOVERNANCE FROM

STUDIES OF BOARD DIVERSITY?

Here I think we can be more optimistic. As I have argued

elsewhere (Ferreira, 2010), there are six broad conclusions

we can draw from the empirical literature on board diver-

sity: (1) Firms appear to choose directors for their character-

istics, and different types of f‌irms choose different levels of

director heterogeneity; (2) f‌irms choose directors as a means

to deal with the external environment; (3) CEOs and top

executives appear to prefer directors who are similar to

themselves; (4) social networks and commonality of back-

grounds appear to affect director appointments and the

dynamics of the board; (5) directors from minority groups

perceive their minority statusas a hindrance to their work as

a director; (6) minority directors may serve interests other

than those of shareholders.

My work with Renée Adams (Adams & Ferreira, 2009)

reveals some of the interactions between gender and gover-

nance. We f‌ind evidence that female directors are more inde-

pendent (from management) than male directors. Crucially,

this is true for both nominal and de facto independence. We

f‌ind that women have better attendance at board meetings,

are more likely to sit on monitoring committees, and are

more likely to force CEO departures after poor stock price

performance. In short, female directors are more likely to be

tough monitors of CEOs.

Our interpretation is not that independence is a female

trait. We cannot rule out the possibility that the observed

independence of female directors is explained by other

unobserved characteristics, such as different social and busi-

*Address for correspondence: Daniel Ferreira, Departmentof Finance, London School

of Economics, Houghton Street, London WC2A 2AE, UK. Tel: (+44) 20 7955 7544;

E-mail: d.ferreira@lse.ac.uk

108

Corporate Governance: An International Review, 2015, 23(2): 108–111

© 2014 John Wiley & Sons Ltd

doi:10.1111/corg.12092