Gender, Boards, and the Performance of Family Firms

Family-owned firms with women board members perform worse overall—but only women are closely linked to the family business.

Gender, Boards, and the Performance of Family Firms

Do female board directors have a good, bad, or neutral effect on a company’s performance? Most studies find that gender-diverse boards lead to improved financial performance. However, most studies on this topic focus on large Fortune 500 companies in developed nations. Few examine the trend in the context of family- owned companies in emerging economies.

Four finance scholars find that family-owned firms with women board members see their performance decline—but primarily when the women are closely linked to the family business. The co-authors include Maximiliano González of the School of Management at Universidad de los Andes in Bogotá, Colombia; Alexander Guzmán of Colegio de Estudios Superiores de Administración (CESA) in Bogotá; Eduardo Pablo of Minnesota State University in Moorhead; and María Andrea Trujillo, also of CESA.

The team tracked the performance of 523 family firms in Colombia— with a collective 4,907 board members, of whom 833 were women—from 1996 to 2006. The researchers found that among these companies, those with more women on their boards not only tended to be younger and smaller, but also offered more stable working environments for their managers. However, the team discovered that with every positive standard deviation in the percentage of women board members, a company’s industry-adjusted return on assets (AROA) decreased by .83 percent.

But the authors point out that their findings are driven primarily by the presence of women with close ties to the family business. When boards included women directors from outside the company, that gender diversity correlated to positive performance outcomes.

One reason for this discrepancy, the researchers write, is that “on one hand, female directors with family ties are likely to have a seat on the board for reasons other than talent (nepotism and dynastic management). On the other hand, independent female directors without ties to the business-controlling family are likely to exhibit exceptional talent in order to qualify for board membership (overcoming the glass ceiling effect and gender bias).”

Does Gender Really Matter in the Boardroom? Evidence from Closely Held Family Firms” appeared online July 18, 2018, in the Review of Managerial Science.