Over the past six years, companies with at least some female board representation outperformed those with no women on the board in terms of share price performance, according to the latest study by the Credit Suisse Research Institute.
In the latest study, the issue of gender diversity and performance is considered from a global perspective. 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% over the course of the last six years.
But there is 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. The bottom line is that relative outperformance of stocks with women on the board looks unlikely to be entirely consistent, but the evidence suggests that a bit more balance on the board brings with it a bit less volatility and a bit more balance through the cycle.
The report identifies seven key reasons why greater gender diversity could be correlated with stronger corporate performance:
(1) A signal of a better company
There is a body of research that suggests that appointment of women to the board is a sign that the company is already doing well rather than a signal of greater things to come. The Research Institute's analysis found that it was indeed the larger companies that, to some extent by definition, have already performed well, that were more likely to have women on the board representatives. However, the strong outperformance of companies with women on the board, even in an exclusive comparison of the large caps, suggests there may be other facets to the relationship.
(2) Greater effort across the board
Evidence suggests that greater team diversity (including gender diversity) can lead to better average performance. Research conducted by Professor Katherine Philips at Columbia University has shown that majority groups improve their own performance in response to minority involvement producing better average outcomes in more diverse environments.
(3) A better mix of leadership skills
McKinsey and NASA have conducted various studies on leadership skills and have shown that women are particularly good at defining responsibilities clearly as well as being strong on mentoring and coaching employees. Hence, the idea that a degree of gender diversity at the board level would foster a better balance in leadership skills within the company may hold merit.
(4) Access to a wider talent pool
Data from UNESCO shows that by 2010, the proportion of female graduates across the world came to a median average of 54 percent. This compares to a median average of 51 percent female graduates in 2000. The trend towards an even greater proportion of female graduates looks set to continue if female success at primary and secondary school level is any guide. Hence, any company that achieves greater gender diversity is more likely to be able to tap into the widest possible pool of talent that is implicit in these graduation statistics.
(5) A better reflection of the consumer decision maker
To the extent that women are responsible for household spending decisions, it makes sense that a corporate board with female representation may enhance the understanding of customer preferences. Consumer-facing industries already rank among those with the greater proportion of women on the board.
(6) Improved corporate governance
There is unusually strong consensus within the academic research that a greater number of women on the board improves performance on corporate and social governance metrics. The Research Institute's analysis of the MSCI AC World constituents showed that stocks with women on board are more likely to have lower levels of gearing than their peer group where there are no women on the board. Lower relative debt levels have been a useful determinant of equity market outperformance over the last four years, delivering average outperformance of 2.5% per annum over the last 20 years and 6.5% per annum over the last four years.
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