New Research on Women on Boards

There’s a new paper in this month’s Harvard Business Review that connects to presence of women on boards to lower overconfidence in male CEOs. This is the kind of research I relish over, especially because the authors found a market based metric to measure CEO overconfidence – the exercise of their own stock options. Essentially, male CEOs who have gender diversity on their boards exhibit less overconfidence in the future of their company stock by exercising stock options at a faster rate. If these male CEOs were more overconfident, they would delay option exercise in hopes the options will be worth more in the future.

Let’s back up a bit.

You may not remember that for years and years, all of the corporations in the world were run by boards comprised of all men. All of the CEOs and other executives were men, too. Even companies selling products and services directly to women were run by mostly men. Do you remember those cringe worthy scenes in Mad Men when the ad agency worked on anything from Playtex bras, to Pond’s face cream, or the lipstick focus group with their secretaries? It may be fiction, but the show isn’t far off the mark.

Bras are for men. Women want to see themselves the way men see them. You’re either a Jackie (Kennedy) or a Marilyn (Monroe).

– Paul Kinsey’s character in Mad Men explains his idea for the Playtex bra campaign


It is only recently, and I mean within the lifetime of an older millennial, that women have entered the boardroom in any significant numbers. In 2018, women held only 17.7% of the board seats for companies included in the Russell 3000 Index. Despite recent attention to the matter and several initiatives to increase gender diversity on boards, more than 50% of Russell 3000 companies have zero women on board. Just this year, the last company in the S&P 500 Index with zero women, added a female board member.

Why is this important?

Study after study reveals that groups tasked with solving complex decisions, such as corporate boards, benefit from cognitive diversity – the differences in the way its members think. The laziest way to achieve cognitive diversity in a group is to ensure you include members from that group that comprises 51% of the world’s population – women.

Overconfidence is a behavioral bias that leads people to misjudge a situation by having more confidence in their abilities than data or current circumstances warrant. It may be a characteristic that led to the thrival of humankind on Earth, as our ancestors took risks to gain knowledge and skills that brought humans to the top of the food chain. But there are negative consequences to overconfidence, particularly in making decisions related to money and investment.

Overconfidence leads CEOs to overestimate returns and underestimate risk, which can result in overinvestment and excessive risk-taking, destroying shareholder value.

– J. Chen, W.S. Leung, W. Song, & M. Goergen summarize their new paper in the Harvard Business Review

The authors of this new study have found a market-based metric to quantify overconfidence in CEOs and linked it to positive effects when women sit on the boards overseeing CEOs. You can add this to the previous 2,000+ reasons that gender diversity is good idea in the boardroom.

Why does the study not evaluate the overconfidence of female CEOs, you might ask? There simply aren’t enough women CEOs out there to warrant a decent sample size. Last year, 33 companies in the Fortune 500 were led by women, an all-time high at only 6.6%.  We can talk about overconfidence among female CEOs when we have enough to study them.

It matters that there is a shortage of women in our boardrooms, and it matters that there is a shortage of women who work as financial advisors. This is why I wrote a controversial op-ed in the New York Times earlier this year to highlight the lack of women entering my profession. It is also why I worked with the CFA Society of Louisiana and the CFA Institute to sponsor a classroom of Rock the Street, Wall Street, a financial literacy program designed to spark the interest of high school girls into careers of finance, in New Orleans. I am very excited for the program to begin at a local school next week.

Kudos to the authors of this new paper. Let’s keep important research like this coming.



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