Correlation checklist: do women on the board raise profits?

Question

A consulting memo reports that companies with more women on their boards are more profitable, and recommends adding women directors to boost profits.

Before accepting that board diversity causes higher profit, list every reason the two could correlate without that being the cause.

Accepted Answer

Run the correlation-to-causation checklist for X (women on the board) and Y (profitability). 1. Confounders (common causes). Large, modern, well-governed firms tend to do both: they are more profitable and more likely to have diverse boards. Good management, size, and industry can drive both variables, so diversity may be a marker of a well-run company rather than a cause of profit. 2. Reverse causation. Profitable, growing firms have the slack and the scrutiny to diversify their boards. Success may cause diversity, not the reverse. 3. Selection bias. The firms that report or get studied on d…

Correlation checklist: do women on the board raise profits?

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