OSU study investigates impact of women directors on company profitability

Tuesday, September 28, 2010

In the vast and complicated world of finance, companies are continually working to become more profitable. In an effort to help provide insight into this topic, three professors in the Spears School of Business at Oklahoma State University have been investigating the characteristics and impact of women directors on companies’ profitability.

Because of this research and her expertise about the topic, Betty Simkins, a professor of finance in the Oklahoma State University Spears School of Business, will serve on a panel at Harvard University’s conference “Closing the Gender Gap: The Business Case for Organizations, Politics and Society” on October 15-16.

The conference will examine the economic value of gender diversity in business, politics and society. Simkins said it will feature many leading experts from around the world, including representatives from the Council of Women World Leaders, the World Economic Forum and Goldman Sachs. The keynote speaker for the conference is Hillary Clinton, U.S. Secretary of State.

At the conference, Simkins will serve on a panel titled “The Organizational perspective: Gender Diversity in Boards.” Simkins, along with fellow OSU finance faculty members Gary Simpson and David Carter, have been conducting research about this topic since 2001.

“I am honored and thrilled to go and be a panelist,” Simkins said. “I think this is an important issue, and I am excited to be a part of such an extraordinary event. I look forward to sharing information about the significance of having women serve on corporate boards and hearing the experts speak.”

The researchers’ interest was piqued by the development of the Enron auditing scandal in October of that year.

“Presumably, it should be the board of directors who ensure the top management does the right thing,” Carter said. “A lot of people began to look at boards very closely after the Enron scandal. The bottom line: is there some way we can structure the boards so they do the right thing? This research is a part of that.”

Simpson said the researchers have explored two research areas: 1) the current status of women on boards and 2) whether companies with women membership on boards of directors perform better. The researchers analyzed 13,000 board seats each year.

Throughout seven years of research, the team found women hold only 11 to 12 percent of board of director seats, and this number has been fairly static throughout the research. Larger companies are more likely to have at least one female director on their board.

The researchers said they have also identified that women who do serve on boards tend to be independent and younger than their male counterparts. They are more likely than men to have backgrounds in consulting, academics and medicine, rather than finance or real estate. Finally, women are less likely to chair committees or serve as the CEO of a company.

In regard to the investigation into whether companies that have women on their boards of directors perform better, the researchers have received mixed results. The researchers found that between 2002 and 2003, women involvement in boards of directors positively affected company profitability. Several years later, the data showed that women involvement in boards of directors made no impact on company profitability.

“At first, I thought maybe it was just prejudice,” Simpson said. “Most boards are dominated by aging, Caucasian men. So, I thought it’s just difficult for a female. Now, I think it’s more complicated than that.”

Carter said he believes these issues are important to a company and will continue to be, especially as more women enter the corporate workforce.

“If you have ten guys with a certain, fairly homogenous point of view, you’ll get a certain answer,” Carter said. “But add some people who are different, and maybe you’ll come up with something different. Essentially that’s what we’re saying; women may not be a perfect substitute for men on boards, simply because they have different backgrounds and different experiences. Mixing it could produce something better.”