Companies with women on their boards perform better in challenging markets than those with all-male boards in a study suggesting that combining genders may moderate risky investment moves and increase return on equity. The number of women in boardrooms has grown since the end of 2005 as countries such as Norway instituted quotas and companies including Facebook Inc. added female directors after drawing criticism for a lack of gender diversity.
The latest research, from Credit Suisse, shows a greater correlation between stock performance and the presence of women on the board after the financial crisis started four years ago. The study analyses the performance of close to 2,400 companies with and without female board members from 2005 onwards.The key finding is that, in a like-for-like comparison, companies with at least one woman on the board would have outperformed stocks with no women on the board by 26 per cent over the course of the last 6 years.
There is however, a clear split between relative performance over 2005 to 2007 and the post 2008 performance. In the middle of the decade when economic growth was relatively robust, there was little difference in share price performance between companies with or without women on the board. Almost all of the outperformance in the back-test has been delivered post 2008, since the macro environment deteriorated and volatility increased. In other words, stocks with greater gender diversity on their boards generally look defensive: they tend to perform best when markets are falling, deliver higher average ROEs through the cycle, exhibit less volatility in earnings and typically have lower gearing ratios.
Giles Keating, Head of Research for Private Banking, noted: “Unique in its scale and global reach this study contributes to the robust debate surrounding the importance of gender diversity and boards. Working with several experts on the topic including Professor Katherine Phillips, Columbia Business School, this study goes beyond the data to explore why gender diversity matters.“
Why Do Women on the Board Enhance Performance?
The report identifies seven key reasons why greater gender diversity could be correlated with stronger corporate performance:
(1) A signal of a Better Company
(2) Greater Effort across the Board
(3) A Better Mix of Leadership Skills
(4) Access to a Wider Talent Pool
(5) A Better Reflection of the Consumer Decision Maker
(6) Improved Corporate Governance
You can read more about this report here