Monday, March 18, 2019

Gender Diversity or Geographical Diversity?

From Gender and Geography in the Boardroom: What Really Matters for Board Decisions? by Zinat S. Alam, Mark A. Chen, Conrad S. Ciccotello, and Harley E. Ryan. From the Abstract.
Recent literature has shown that gender diversity in the boardroom seems to influence key monitoring decisions of boards. In this paper, we examine whether the observed relation between gender diversity and board decisions is due to a confounding factor, namely, directors’ geographic distance from headquarters. Using data on residential addresses for over 4,000 directors of S&P 1500 firms, we document that female directors cluster in large metropolitan areas and tend to live much farther away from headquarters compared to their male counterparts. We also reexamine prior findings in the literature on how boardroom gender diversity affects key board decisions. We use data on direct airline flights between U.S. locations to carry out an instrumental variables approach that exploits plausibly exogenous variation in both gender diversity and geographic distance. The results show that the effects of boardroom gender diversity on CEO compensation and CEO dismissal decisions found in the prior literature largely disappear when we account for geographic distance. Overall, our results support the view that gender-diverse boards are “tougher monitors” not because of gender differences per se, but rather because they are more geographically remote from headquarters and hence more reliant on hard information such as stock prices. The findings thus suggest that board gender policies, such as quotas, could have unintended consequences for some firms.
There are two extremes which not uncommonly are held to be simultaneously true - either women are functionally identical to men or they are distinctly and completely different. This frequently manifests in an argument along the lines of "women should be found in the same numbers in a profession as men because women are basically the same as men" while at the same time holding that "there is a distinct style of female management which is better." It is only an argument that could be made by Carroll's White Queen.

I do not believe either argument in its extreme. Men and Women are very similar but there are differences by choice, by nature, by evolution, which drive towards different aggregate outcomes over time but which are rarely completely predictive at the individual level. In other words, in cognitive and social terms (i.e. not physiological terms), any individual man or woman might manifest exactly the same capabilities but over a population of men and women, there are exogenous influences which create varying propensities.

Thinking of any managerial attribute (sociopaths and empaths, manipulators and straight-dealers, creatives and gradgrinds, leaders and followers) and I can recall from my career both male and female exemplars. It is all about the individual.

Hence, I have long objected to the idea that boards should be diverse by gender or race. Race and Gender are not determinative predictors of anything. Individuals and their abilities and experiences are. You do need diversity on a board but diversity of experience and sector and geography and background, etc. Putting women on a board because they bring "a woman's view" or a minority because they bring a "minority view" has always struck me as insulting tokenism and ultimately self-defeating. I know plenty of women executives and board members who have great ability and who have earned their positions and every time a woman is placed in a role simply for being a woman, their accomplishments are discounted. Rather than advancing the cause of equality, it undermines it through identity tokenism.

So I am inclined to believe the researchers finding, though it warrants replication. What I find interesting is their suggestion that increased effectiveness is due not to distance per se, but due to increased reliance on hard information in decision-making that is in itself a consequence of distance.

The implication is that instead of monkeying around with the tokenism of gender or racial diversity, what board recruiters need to be focusing on, in addition to experiences, accomplishment, etc. but also the capacity to think rigorously and logically based on evidence rather than emotion.

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