How To Create A Company That Won't Fail? Put Women On Your Board

New research suggests that companies with a larger female presence on their boards did far better during the economic downturn than those with only men.

When choosing stocks and investment during a tough economy, look for companies with women on the board. That’s what the results of a new study would suggest. According to the report, which comes from Credit Suisse’s research division, companies with at least one female board member have outperformed those with only men over the past six years. The new report analyzed the performance of 2,360 companies around the globe with and without female board members from 2005 onwards. To put those numbers in perspective, only 41% of companies on the MSCI World Index, a collection of global stocks, had any women on their boards at the end of 2005. By the end of 2011, it had increased to 59%.

They found that the companies with boards that included women outperformed stocks with no women on the board by 26%. There is a caveat, though. The report shows a split between different time periods. Between 2005 and 2007, when economic growth was relatively robust, there was little difference in share price performance between companies with or without women on the board. On the other hand, from 2008 onwards, as volatility increased, the companies with female board members outperformed the others.

In other words, "stocks with greater gender diversity on their boards generally look defensive," write the study authors. "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 data raise a larger question: Why does gender diversity improve a company’s performance? One reason could be that companies with female board members are already doing well. Companies may be more likely to have women on the board when they are larger and more established. But the authors say that this doesn’t account for all the benefits shown.

Another reason for the female-led boost could be that diversity increases the performance of all board members. Studies have shown that majority groups improve their own performance in response to minority involvement producing better average outcomes in more diverse environments. In addition, a 2010 study hinted that the collective intelligence of a group was not mostly determined by the average or maximum intelligence of the individuals within the group but was better explained by the style and type of interaction between the group members. More women in the group signaled a greater collective intelligence.

In addition, women are the primary consumer decision makers in homes across the world, and having women on the board may guide companies to better products and services for the people who spend household money.

Women could also help improve how a company acts. The study authors write that research shows that a greater number of women on the board improves performance on corporate and social governance metrics. In addition, research showed that stocks with women on board are more likely to have lower levels of debt than other stocks. Finally, gender-diverse boards were more likely to focus on clear communication to employees, to prioritize customer satisfaction, and to consider diversity and corporate social responsibility.

Getting women on boards is not always a simple task, though. Some governments have chosen to intervene in the gender ratio, and over the past five years, seven countries have passed legislation mandating female board representation and eight have set non-mandatory targets. Those countries are mostly in Europe; in emerging Asian markets, 72% of companies listed have no women on their boards.

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  • DisqusSteve988

    OK, at the risk of getting labelled a Sexist, I believe you
    have to first ask what qualities women bring to a BOD that men don't? Let's
    presume that the women we are talking about here are not in the mold of
    Margret Thatcher. By this I mean women who demonstrate all the qualities of men
    and get to the top by being as tough and ballsy as their male counterparts, if
    not more so. I believe we are talking about the kind of woman I have come
    across in business that offer qualities that are very different to their male
    counterparts. In one example we can talk about companies that have a farming
    culture and those that have a hunting culture. The hunting culture is all about
    aggressively chasing new customers where the farming culture is more about
    keeping existing customers happy and providing them with more and better
    services. The farming and nurturing culture being much better served by women
    and the hunting culture by men. [though not exclusively] Another example is how
    some companies listen to their customers when it comes to NPD or forge ahead
    with their own ideas and knowledge to develop new products. Do you tell people
    what's best for them and hope they agree or do you follow
    carefully what your customers tell you they want? As I'm sure you know with
    both these examples, you need a bit of both to succeed as a company. If you are
    going to run a successful company you need balance. The men I have worked with
    are often much more process focused and the women much more people focused.
    The men engage with the functional benefits of a Brand and the women the
    emotional. You need BALANCE to achieve long term success.

                    For me
    a successful BOD needs both male and female QUALITIES. Men and women do have
    both within them but obviously there is a bias in us all. If you had a board
    full of women and half of them were in the mold of Margret Thatcher, perhaps
    we could get rid of men entirely!? If you want a company to succeed, you don't necessarily need an equal number of men and women on the board you just need a team that
    has a balance between masculine and feminine qualities. 

    Is that right, or does anyone disagree?

  • Frost

    I serve on the board of a nonprofit and have found that the board is generally healthier when we have roughly an equal number of women to men on it than when it is heavily loaded with men. (It has never been loaded with women.) Further, when heavy lifting is required, the women tend to outperform the men, despite the fact that all the board members have busy careers. Some of the men consistently perform well and are easy to get along with and cooperative, but if someone is going to declare themselves chief and above grunt work, it is always a man. At one point we began hemorrhaging board members due to an ongoing pissing contest between two of the men. It only stabilized when our director and the handful of sane ones left, including one sane man, deliberately set out the recruit more women. It is a much more productive and healthy board now.

  • niico100

    I think you're confusing cause & effect here; as Simon Kendall says.

    I would guess it's more about the ability of the individual - regardless of gender.

  • Anon

    Fast Company doesn't publish racist articles saying that having more whites increases a groups collective intelligence, do they?
    No, because they are decent human beings.

    Fast Company doesn't publish homophobic articles saying that having more heterosexuals increases a groups collective intelligence, do they?

    No, because they are decent human beings.

    Fast Company doesn't publish sexist articles saying that having more men increases a groups collective intelligence, do they?

    No, because they are decent human beings.

    Fast Company doesn't publish sexist articles saying that having more women increases a groups collective intelligence, do they?

    Do they?

  • Micah Yost

    When a majority of companies have no women on their board, and a majority of the companies that do have only one or two, it's hardly sexest to suggest that there should be more. This article is simply part a small part of a broader conversation on the massive benefits of diversity, specifically in current economic conditions that require quick innovation and creativity. I think this comment is, at best, showing a lack of bigger picture perspective. In today's economy, diversity of thought and perspective is critical. This is just one slice of that conversation. IMHO at least.

  • sighmoan_says

    I didn't read the report - merely skimmed the abstract - but have the research authors ruled out the opposite causality? Companies that are good at weathering crises are also better at placing women in the board. The women specifically may not necessarily have caused outperformance, but the general corporate culture that allowed those women to rise also makes the company work better.

    Just thought that "Women on board make better companies" is a better headline than "Good companies are good at lots of different things, including gender diversity." Which was probably part of the aim of CS' PR effort.