So Women on Boards Are a Bad Thing Now?

By Sallie Krawcheck

That sound you heard last week was some wailing and gnashing of teeth over a Harvard Business Review (HBR) article on some new research. They found that companies that appoint a woman to their board of directors suffer a decline in their market value for two years following the announcement.

The stock price decline isn’t accompanied by any decline in profitability, according to the authors. And after two years, there’s no longer a measurable effect. (Not to mention that other research tells us that having more women on boards is linked to superior results, like higher return on equity, higher dividend payouts, more transparency, lower overconfidence by men, and corporate social responsibility.)

It’s broadly believed that our stock markets are the most efficient in the world. Yes, they get something really wrong every decade or so — hey there, 2008 financial crisis — but on a day-to-day basis, it’s hard to outsmart the markets. (In fact, it’s so tough for people to be smarter than the market itself that the Wall Street Journal used to hold regular stock-picking contests between professional money managers and monkeys throwing darts. The monkeys made a good showing in comparison to these so-called “masters of the universe.”)

Yet here’s a market inefficiency revealed.

So it’s bias. It’s pure bias that drives this stock price underperformance.

And some HBR readers didn’t like it. Some looked for other explanations for the results, beyond gender. Could the results have been affected by time of year? Or by not looking at inclusion along with diversity? One comment on the article asked: “By publishing this report, has HBR and these women scholars set back the women’s issues by decades?”

My POV: We know this. Deep down, we know this. This isn’t news.

We know that inherent biases continue to exist in the system. We know that those biases inhibit change.

Because if that weren’t the case, then US boards of directors would already be representative of the population at large.

So boards — which the article correctly states are “mostly male” — aren’t moving fast enough. And the stock market — in which traders and mutual fund managers and hedge fund managers are also mostly male — doesn’t react well.

But then, over time, the stock price performance falls in line, as it becomes clear that women’s cooties don’t infect the company when they join the board.

The HBR authors’ proposed solution to this issue: Don’t highlight gender in new board member announcements. Instead highlight specialized expertise so that the company “signal(s) nothing about firm preferences other than its commitment to hiring the best people for the job.”

(Ah, the authors pulled out the old “best people for the job” trap. As if the “best people for the job” can’t be found in over half the population.)

We shouldn’t give a $*#@ about two years of stock price performance.

My proposed solution? As a businessperson and a “recovering research analyst,” I would argue that we shouldn’t give a $*#@ about two years of stock price performance.

Great CEOs build their companies for the long term, not for two-year periods.

That should mean putting in place diverse teams that can bring them different perspectives and insights. It also means building inclusive cultures, so that those perspectives and insights can be heard.

That wailing and gnashing of teeth shouldn’t be because an article quantifies the bias inherent in our (un-diverse) stock markets. The outrage should instead be because the article from HBR (HBR! The bible of business management!) implicitly recommends that CEOs follow rather than lead, by allowing their behavior to be dictated by short-term stock market moves — instead of building the best companies they can, recognizing bias for what it is, and allowing the markets to catch up.


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Sallie Krawcheck

Sallie Krawcheck is the Co-Founder & CEO of Ellevest. Her life’s mission is to help women to reach their financial and professional goals.