A topic of international concern and discussion is the limited presence of women in the boardroom. With women holding only 14% of the board seats at S&P 1500 companies, the question raised is what should be done about gender disparity. Of course, some, may be also be asking: why bother? Are there any benefits to improved gender diversity? And, if there are tangible benefits, how best to go about achieving these on a national or international basis?
Part of this dialogue considers the business case for women in the boardroom and focuses on studies concluding that firms with diverse representation attain better financial results. One such study used three measures of financial performance: return on sales (ROS), return on invested capital (ROIC), and return on equity (ROE). Companies with women on the board outshine others on all 3 measures.
He Said, She Said
Perhaps it is not surprising that male and female directors themselves differ sharply on their opinions on gender diversity at the board level. Men and women also differ on the reason why women are underrepresented on boards. One well-respected study indicated that 45% of men believe that the primary reason that the percentage of women on boards is not increasing is the “lack of women in executive ranks.” In contrast, 35% of women state that the primary reason stems from the fact that “traditional networks tend to be male-oriented.”
The commitment to diversity may be stronger at larger companies. A recent Ernst & Young survey indicates that 90% of S&P 500 companies have at least one female director on their boards, while more than 60% have two or more. The percentage drops to 75% of companies in the S&P 1500 with at least one female director, while fewer than 40% with two or more.
If one considers the outcomes in developed versus developing markets, one sees that 11.1% of all directors are women as opposed to 7.2%.
Is the tide turning? From the U.S. perspective, the same survey indicates that of the 1,800+ directorships currently held by women, nearly 40% joined their boards in the last five years. But companies appear to be adding women to their boards, as the E&Y Survey indicates — “at a sluggish pace.”
Impact on Corporate Performance: Cui Buono?
2012 Board of Directors Survey
The good news is that there has been considerable research on the issue of the impact of gender diversity on corporate performance. One recently released study found in reviewing the performance of 2,360 companies globally over the last six years, that it would on average have been better to have invested in corporations with women on their management boards than in those without. Specifically, the study found that:
companies with one or more women on the board have delivered higher average returns on equity, lower gearing, better average growth and higher price/book value multiples over the course of the last six years.
…Beyond the Usual Suspects
While most companies may not have very many women to consider for board positions, there is help at hand. Two of the world’s largest institutional investors, the California Public Employees’ Retirement System and the California State Teachers’ Retirement System recently commissioned GMI Ratings to create the Diverse Director DataSource (3D) to help identify qualified women and other candidates with a diverse range of backgrounds, skills and experience.
World class boards need to be prepared to discuss the composition of their boardroom with shareholders. Some investors are engaging companies without women on their boards, in a dialogue or, shudder, preparing shareholder proposals.
NOTE: As a matter of disclosure, we at Willis recently hosted a Financial Times debate on how to get more women on boards with their Non-Executive Directors’ Club, so the topic hits home with us.