Skip
Current Issue
This Month's Print Issue

Follow Fast Company

We’ll come to you.

3 minute read

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.

ARE YOU REGISTERED TO VOTE?
Register now to make sure you have a voice in the election.
loading