March 18, 2010 — “It is grievous to read the papers in most respects,” wrote Mary Ritter Beard, the renowned early 20th century author and historian. “More and more I skim the headlines only, for one can be sure what is carried beneath them quite automatically, if one has long been a reader of the press journalism.”
While just skimming print headlines might have been fine in Beard’s day, you can’t always trust them today. I’ve seen bad headlines over the years. But this one from the Harvard Business Review made me gasp: “Adding Female Directors Hurts Norwegian Firms' Value.”
In the age of Twitter and RSS feeds, headlines that misrepresent a story can inflict more damage than ever. In a matter of seconds, an inaccuracy can spread quickly across the globe. Along the way, it can reinforce negative stereotypes or lay foundations for doubt where none previously existed.
The Harvard Business Review headline above referred to a recent University of Michigan study into the short-term impact of a Norwegian law mandating that 40% of the seats on corporate boards be allotted to women. The headline was featured on HBR’s Daily Stat— a website, Twitter feed, and iPhone app dedicated to delivering “facts and figures to stimulate thought— and action.” Within hours, it was re-tweeted 34 times.
But the sensational headline didn’t tell the whole story.
In 2003, the Norwegian Parliament mandated the 40% quota. At the time, women held roughly 9% of board seats. After voluntary compliance failed, the quota became mandatory on January 1, 2006, and companies had two years to comply. Companies that failed to meet the quota would be forced to dissolve.
The Michigan report first looked at how the initial announcement of the law impacted stock price. Firms with fewer women on board suffered a greater shock. Why? Because they were required to rotate several board members in short order, thereby producing significant uncertainty. Three days after the announcement, the stock price for firms with no women on their boards dropped 5%, while those with women on board did not suffer a statistically significant loss.
The report also looked at market valuation during the first year after the law went into effect. The researchers found that companies with initially fewer women board members suffered more than those with a greater number. According to the researchers, companies were forced to bring on more new women board members very quickly, and in doing so, they selected women who had less management experience than the men they replaced.
The Michigan study focused on the short term, not long-term impact. Catalyst research shows that over the long term, on average, companies with a higher percentage of women on their corporate board outperform those with fewer. Just as a successful product release can affect share price negatively for a brief moment (think Nintendo’s Wii), so, too, can a controversial new law shortly after its implementation.
But it's the long-term effect that matters.
That’s why the Harvard Business Review headline was particularly regrettable. In today’s info-soaked society, many people just read a headline, absorb it, and move on. Had I done that, I would have gotten the impression that women make poor board members. Fortunately, I read beyond the headline.