I'd worried when the Secretary of the Treasury was citing work that relied on studies by Catalyst and McKinsey on the benefits of boardroom diversity. Adams walks slowly through just why those kinds of studies really are not up to the task. Even better, she reproduces Catalyst's results before showing how they disappear when you account for endogeneity. In other words, the kinds of firms with more diverse boards are different from the kinds of firms with less diverse boards, and those non-board differences explain the performance differences.
Adams warns that business-case approaches to diversity mandates, in which firms expect strong improvements in performance with a change in the board's gender composition, risk creating unrealistic expectations for newly appointed female directors.
If you care about the evidence on the topic, it's worth reading the Adams summary. The literature survey is comprehensive. I've no dog in this fight. But I get worried when folks seem convinced of things that ain't so - and especially when the things that ain't so get endorsed by the Secretary of the Treasury.
Here's the final table from the Adams piece, showing what happens to the Catalyst study when you add in very standard controls. Column I shows firms with a greater fraction of female directors have stronger ROE. But column II shows that's mostly because larger firms have greater fractions of female directors. Column III shows that industry controls roughly halve the statistically insignificant effect found in Column II, and Column IV shows that putting in firm-level fixed effects reverses the sign of the effect in Column I.
When the upper echelons of government become convinced that things that are nice are also profitable for firms, we risk poor policy.
When everybody thinks they know that some particular measure is profitable, and not all firms seem to be doing it, you start seeing Regulatory Impact Statements or Cabinet Papers claiming that forcing firms to do something would be in those firms' best interest and would increase profits. Treasury used to bat that kind of thing back.
HT: Glenn Boyle