The Good and Bad of Women Directors

October 12, 2009 ( - A new London School of Economics study indicates that appointing more female directors can help a company's governance, but could ultimately hurt its bottom line.

A news release said researchers Daniel Ferreira from the Departments of Management and Finance and co-author Renée Adams from the University of Queensland found boards with more women are more effective when looking at measures such as the monitoring of CEOs. In those situations, for example, CEOs are more likely to be replaced for poor stock price performance, the study found.

Ferreira and Adams said having more female faces in the boardroom also meant higher attendance levels across the board where male directors tended to show up more often as well.   

Female directors are more likely to sit on monitoring-related committees than male directors. In particular, women are more likely to be assigned to audit, nominating and corporate governance committees, although they are less likely to sit on compensation committees, the study found.

“Women directors appear to have a significant impact on the governance of companies. However, it is not necessarily that the women on the board are doing all the monitoring,” Ferreira said. “The behavior of the board as a whole is affected by increased diversity.”

The downside, according to the study, firms on average with proportionally more women on their boards are less profitable and have a lower market value. The report said: “This suggests that in well-governed companies increased monitoring could have a negative effect. In contrast, badly governed companies were found to benefit from having more women on their boards.”

Ferreira contended: “Clearly the message is not that we need less women on boards. A board is not, after all, exclusively directed towards profit. However, we can see that when you meddle with boards there may be unintended consequences. This is particularly important to bear in mind in the current context when companies are under increasing pressure to change the composition of their boards.”