Correlation, but in which direction?

Via Tim Worstall, this from The Telegraph:

Britain’s most successful companies tend to have a large proportion of women in senior management roles but the UK lags behind the US and Australia on diversity at the top, new research suggests.

Between 2011 and 2015, the most gender diverse quarter of companies were 20pc more likely than the least diverse to have above average financial performance, a report by management consultants McKinsey found.

Dame Vivian Hunt, who runs McKinsey’s UK business, said: “The correlation between diversity and financial performance is clear across different sectors and geographies: more diverse teams equals significant financial outperformance.”

I am not contesting the correlation, but I have an inkling they might have got the direction in which it runs arse-about-face. Here’s a list of the ten countries with the best road safety record:

And here’s a list of the ten countries with the worst:

Should we conclude that having safe roads makes a country wealthy? Or that wealthy countries are in a better position to make their roads safer?

My guess is those companies which are top financial performers in their industry have the spare cash to throw around on social programmes such as ensuring gender diversity. What will be interesting is how well these companies are doing in five or ten years’ time. The pitiful example of Carillion shows that implementing diversity policies is no guarantee of financial success, but I’d be willing to bet their books were looking a lot better when they first started dreaming them up.

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15 thoughts on “Correlation, but in which direction?

  1. Wait, are you saying that the increased sales in my office are not due to our Gender Officer? But I’ve just given her a raise and organised a huge celebration, and planned to give her three more staff.

  2. “Should we conclude that having safe roads makes a country wealthy? Or that wealthy countries are in a better position to make their roads safer?”

    Neither: both are a consequence of a different thing That Dare Not Speak Its Name.

  3. I was going to say maybe respect for the law makes roads safe and a country wealthy – but I am not sure that would explain Spain being on the list.

    If you look down the list some very rich countries e.g Saudi Arabia are much more dangerous than some poorer ones e.g Jamaica.

  4. I’m glad you brought this up. I’ve thought the same myself since I first heard the statistics.

    Which brings up another question. Why does no one else bring this up? Why does no one do the obvious study, charting financial success against the changing gender make-up is a company’s board.

    It’s almost as though only certain studies are allowed.

  5. I wonder whether those companies with the best financials receive any government support, possibly as encouragement for putting more women in positions of authority? I honestly don’t know of course, and a quick search for “subsidies” didn’t turn anything up in the article, so I may be completely off base.

    But it wouldn’t surprise me.

  6. I suggest a mix of things:-

    1) companies that live off the state or state licensing (BAE, BT, G4S, banks, ITV, National Grid). They feel under pressure to do the state’s bidding, so will stuff women into key jobs (even though they’re Potemkin roles).
    2) producer capture. Companies that are coasting along with reasonably useless management, with executives flying first class who would like a knighthood and to be seen as “decent people” and value that over shareholders.

    Following on from another thread: people running FTSE100 businesses are rarely businessmen. What’s Vittorio Colao done since 2002 at Vodafone? Anyone? What about Carolyn McCall at ITV? She ran Guardian Media Group for a decade as it was losing money and burning money on useless projects. She got Veuve Cliquot Businesswoman of the Year, but she’s never built a business from scratch, or turned around a business or even done a Terry Leahy. She has no track record of making money. Or Paul Geddes at Direct Line? What’s he done other than just extend what the founders of that business did?

    The FTSE 100 is mostly bureaucrats living off the fat. Many of them have no track record of delivering where it counts: boosting profits. They have no personal record of building a whelk stand. And well, that’s their business. But it doesn’t mean it’s a good template.

    You look at who founded and built large successful businesses and few of them are women. Anita Roddick, Oprah, Martha Stewart, Liliane Bettencourt, Meg Whitman, Coco Chanel and Helena Rubenstein (and yes, the pattern is that they nearly all sell stuff that men have zero clue about). If you want to find a dying tech company, it’ll be run by a woman, like Oracle, IBM or HP.

  7. jabrwok,

    “I wonder whether those companies with the best financials receive any government support, possibly as encouragement for putting more women in positions of authority?”

    No, but they’ll get titles. They’ll get a smoother ride at society events, maybe even get invited to certain things.

    It’s like the woman running YouTube who wants more “serious” work rather than comical cat videos. She just wants to be at Oscar parties, or invited to the White House. That’s her focus, not making shareholders richer.

  8. Not sure if the London Stock Exchange has similar reporting requirements on gender equality as the Australian Stock Exchange (ASX) has whereby listed companies must publish their progress against six stated Gender Equality Indicators. It also requires organisations that have not made an improvement in any area to state the reasons for nonperformance, the “if not why not” requirement. Given that generally speaking the largest and best performing companies are listed, then it follows that they will have increasingly more females around the higher levels of the organisation otherwise they wouldn’t be complying with the requirement of being a listed company. ASX corporate governance reporting is the only reason that there are more females in the executive head count, it has nothing to do with them driving better financial performance.

    ………………………..

    “Mr Kevin Lewis, ASX Chief Compliance Officer, said: “The changes made to the diversity recommendations in the third edition of the Corporate Governance Principles and Recommendations will clarify what is meant by “measurable objective” and improve the quality of disclosure around female participation in leadership roles. With supporting changes to the ASX Listing Rules, listed entities will now have much greater flexibility to make their governance disclosures on their website rather than in their annual report, which should also encourage greater disclosure. The flexibility of ‘if not why not’ reporting remains for those entities choosing not to adopt the recommendations.”

  9. There is a big difference between having a female executive in charge of HR (where they can’t do as much harm to the core business) and having one as the CEO.

    Put simply a female CEO of a business is a death knell as Carly Fiorina illustrates. Contrarian investors understand this, which is why they short the stock.

  10. Almost no real information can be gleaned from that article. “29% more likely to underperform financially.” What’s the metric? Revenues, share price, earnings per share, revenue per employee? When a metric is not clearly presented it’s being hidden for a reason. Even if it’s taken completely at face value, these companies do better financially, what are the backgrounds of the people? Can no one do a story straight up anymore?

  11. “My guess is those companies which are top financial performers in their industry have the spare cash to throw around on social programmes such as ensuring gender diversity.”

    And if they don’t have the spare cash, along will come government to FORCE them to spend it, regardless, with the imposition of legislation.

  12. @John Galt – ” having a female executive in charge of HR (where they can’t do as much harm to the core business) ”

    I’d disagree – the HR hags can (and in my experience, DO) make their hiring decisions based on feelz and diversity requirements, not on the ability to do the job.

    I could list dozens of examples but one job I failed to get an interview for, I called the woman recruiter to be told my CV was too ‘technical’ – I’m an engineer and she simply did not understand or could relate to my skills and experience so no interview for me.

    By acting as a malign filter at the entry stage, then if the company is staffed by employees that are selected on the basis that they can satisfy the arbitrary whims of these women, not the role of the job or what the hiring manager wants, then I would suspect that the company is on the slippery slope. One excellent indicator is if you need to register on the company’s website and complete the database record that HR can’t be arsed to complete themselves and/or talk to a camera as the initial interview. You can guarantee that you are wasting your time.

  13. Myself (male) and two female colleagues interviewed for graduate positions at my work place. I liked the dry technical chap but they preferred the more likeable woman. After two years or so plodding along she left to become a full time mum. Good for her.

    A problem is that at certain layers of society and the economy what customers increasingly DO value is feelz. To be frank, a lot of professional services (like McKinsey and others) don’t do much of real value, but nevertheless manage to get clients to pay them thousands per man hour in fees.

    Value is subjective, but contemporary values are pretty messed up, and thanks (?) to technologically driven improvements in wealth you can get your priorities very wrong for a long time before you start to go hungry.

  14. “…but I am not sure that would explain Spain being on the list.(countries with safer roads)
    Complete f***ing mystery to me. Basically, you wouldn’t want a Spaniard in control of any mode of transport didn’t have a leg at each corner.

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