Professor Bainbridge...on law, politics, religion, culture & food

Diversity in the Boardroom and Elsewhere

Gordon Smith:

Catalyst, a research and advisory organization whose mission is to “expand opportunities for women and business” issued a “report” (wall chart?) today entitled The Bottom Line: Corporate Performance and Women’s Representation on Boards, which purports to show a “very strong correlation between corporate financial performance and gender diversity.” The President of Catalyst is quoted as follows: “We know that diversity, well managed, produces better results. And smart companies appreciate that diversifying their boards with women can lead to more independence, innovation, and good governance and maximize their company’s performance.”

A study is hard to evaluate when all we get is a few graphics and a soundbite. In preparing my forthcoming article, The Dystopian Potential of Corporate Law, 56 EMORY L. J. __ (forthcoming 2007), I looked at other studies of diversity and firm performance while responding to Kent Greenfield’s claim that “adding perspectives other than those of rich, white men will almost certainly improve the quality of business decisions made by the board.” One way to approach this is to ask: how is it that we all know this when evidence is so scant?

After reviewing the then-extant studies, our own Lisa Fairfax—certainly a sympathetic commentator on diversity—expressed skepticism for the “governance rationale” for diversity on corporate boards. See Lisa M. Fairfax, The Bottom Line On Board Diversity: A Cost-Benefit Analysis Of The Business Rationales For Diversity On Corporate Boards, 2005 WIS. L. REV. 795, 831-37. I agree with Lisa that the case for diversity has not been made on governance grounds.

I share their skepticism. In my research on participatory management, I found that:

[T]he success of a participatory management program largely depends on the personality of workers and managers.  Workers with weak desires for independence are unaffected by employee involvement, while those with strong independence drives get increased job satisfaction from it.  These findings are consistent with Witte’s conclusion that activist employees, defined as those most likely to seek an active role in participatory management, were atypical in a number of significant respects.  They tended to be white males who were younger, more politically active, and better educated than their peers.  They also tended to be far more ambitious than their peers, while simultaneously being less tractable to supervision.  Witte further concludes that activist employees make poor representatives of the workforce as a whole.