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Peirce Challenges Popular Thinking on Increasing Gender Diversity on Boards

In a recent speech, SEC Commissioner Hester Peirce outlined her concerns regarding the attention given to the presence or absence of women on corporate boards. Peirce said she is skeptical that increased female representation would improve a company’s performance, explaining: “[T]here is mixed evidence as to whether the mere inclusion of women on boards has an effect on a company’s performance.” She pointed to various academic studies and countries that impose quotas on public company boards and asserted that while some studies have found that having women on corporate boards has a positive effect on a company’s return on assets, others have found “no impact on performance at all.” Secondly, Peirce contended that recent state government intervention in this area improperly overrides private sector decisions, and a federal effort to mandate board formulations could be even more harmful to competition. “Federal involvement in forcing women or groups with particular skill sets onto corporate boards is even more troubling than state involvement. When states make these kinds of laws, corporations can move to another state. The resulting competition among states is one reason that corporate governance has traditionally been left to the states,” she said. Peirce also observed that these mandates detract from companies’ autonomy and could be costly, particularly for smaller and younger businesses that compete with larger firms for highly skilled talent. “[T]he decision of whom to place on a board is an intensely bespoke decision for a company. Optimal board size differs by company, but adding another director is not always a good option.” Peirce, however, acknowledged the value of board diversity. “To the extent that diversity of any kind improves a company’s ability to increase corporate value—by, for example, deepening the board’s understanding of its customer base or introducing new ideas that a more externally homogeneous board might have missed—it is an eminently reasonable issue for consideration by anyone interested in a company’s welfare.” Meanwhile, the Wall Street Journal reports that all of the companies in the S&P 500 index now have at least one woman director on their boards.

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