Monday, September 17, 2012

Women in the boardroom lead to increased financial performance

Women who have fought for representation in high-ranking corporate positions may now have a reason to brag. According to a recent report, companies with women sitting on their boards of directors performed better during the economic downturn than those with all-male boards.

The gender diversity on a given board greatly depends on the market sector of the company. Heavy industry and manufacturing sectors tend to have a much lower proportion of women board members. For example, in 2011, 27% of healthcare industry boards had no women, while this was the case for almost double that percentage (52%) in the IT industry. In general, however, trends show increasing female board representation.

The report's most interesting finding is that companies with over $10B in market share and with at least some female board representation outperformed those with no women on the board. This is based on share price, or stock, performance. Specifically, the companies with women on their boards outperformed comparable businesses by 26%.

Based on these results, the Institute analyzed additional financial performance indicators as they correlate to female board representation. They found better financial performance on several metrics, including slightly lower debt with a much faster response to debt management as the financial crisis and global slowdown unfolded, along with better average growth (14% over past 6 years versus 10%).

Why does having a more gender-diverse board of directors so greatly influence company financial performance? The report cites six likely reasons why the presence of one or more women on the board has such a positive effect. Among the most relevant are leadership skills and reflection of consumer preferences.

A 2008 study by McKinsey called “Women Matter” found that among the 9 key skills for successful leadership, women more consistently apply 5 of these (namely mentorship and concern for others)  NASA completed a similar study with similar results. Thus, women on a board may foster a better balance of leadership skills. With regard to consumer preferences, female board representation may better reflect what consumers want. Regardless of the reasons why (or my personal opinion that this does not have to be the case), women likely reflect consumer preferences because women are responsible for most household spending decisions. Some reports suggest up to 87% of women handle the household budget.

Despite strong evidence that female representation on boards of directors directly benefits companies and the logical rationales to support this, women still face barriers to reaching senior management positions. According to data from Catalyst, across the U.S., only 16% of board members are women. Most barriers are structural and are thus much more difficult to change.

A great example of a slow-changing structural barrier to female advancement to senior management is the appointment and recruitment process. Many board positions are not advertised and are filled through informal networking among current members. A 2002 article in Sociological Focus, written by two University of California professors showed that men tended to have a social network biased towards men. In contrast, women generally had much smaller but more balanced networks, with approximately equal amounts of men and women. Thus, the men already sitting on the boards use their existing male-centered networks to find other potential board members…and the cycle continues.

Hopefully with research like the recent report from the Credit Suisse Research Institute, "Corporate America" will continue to see the value in having women representation in senior management and board positions. It’s hard to argue with the direct financial benefits companies seem to get from simply hiring and promoting women into leadership positions.


Patricija said...

The top determinant of who we make relationships with is similarity (followed by attractiveness). Therefore, men may not (or even probably don't) even realize they are perpetuating the cycle when they promote through their networks. Working in tandem with this, I have found that many women tend to be particularly uncomfortable with the notion of networking. We are taught to have deep and strong relationships. While I think this is incredibly valuable (I think you alluded to this as a possible factor why having women on board leads to success), it can ultimately hinder women's ability to be competitive in power positions that happen in smoked filled rooms behind back doors (not to mention golf fields!). These types of relationship take time and effort and therefore it is hard to have a lot of them. Therefore, I think in order to succeed women need to continue the deep and personal relationship we have been told we're good at (there's debate there) as well as play the "men's" game of having a couple of cigars and connecting on a much more superficial level.

Pali said...

The glass ceiling may not disappear overnight, but no one can deny the unrealized fiscal returns lost when a boardroom is just a boys' club. As corporations finally start to realize the economic returns of bringing diversity to C-level executives, maybe there is hope for the rest of us budding women lawyers!

Charlene said...

It is undoubtable in my mind that more women in the boardroom would benefit us all. I wonder, however, what a comparison of boards with mainly women would yield. My job right before law school was working as an assistant program manager for a non-profit that sought to teach peace through art to middle schoolers. Our board was comprised of 9 extremely talented and intelligent women and one extremely talented and sarcastic British man. Karen Blessen, co-founder of the non-profit and my boss, was always seeking more men for her board because the board was more productive and it had a better vibe. I think we all have a tendency to get away from ourselves when the numbers are tipped too far in either direction.

KRB said...

This is a very interesting and inspiring post. I hope that my classmates and I will find ourselves in the boardrooms of our firms someday.

I agree with Patricija that women, in addition to building strong personal relationships, benefit from networking on a more superficial level. Last school year when I was hunting for a summer job in the nichey wine law field, I found that "who I knew" or even who I was acquainted with really went a long way. My ultimate employer was very impressed by the fact that I had made so many contacts in the field, and in particular, had began networking with wine professionals in the community where I will be practicing law (Napa).

Someone once told me that learning to play golf would be the "best thing I could do for my career" because so much business is conducted on the course. At first I was a little offended because golf is predominantly played by men, but then I realized that because it is slow-moving and social, it is conducive to networking and business dealing. Not a bad idea (but I have yet to learn)!

Attisaurus said...

I applaud this study and am extremely glad that its findings will soon change the way that companies conduct executive hiring/appointments, but I take issue with the reasoning that these studies proffer for women's newfound success in higher-up positions.

"among the 9 key skills for successful leadership, women more consistently apply 5 of these (namely mentorship and concern for others)"

I vehemently object to this characterization. How degrading and stereotypical (of the nurture ethic) to attribute the tireless work of women in executive positions to their innate mothering nature! Do these studies seriously have people believing that female execs are/will be better managers because they're naturally compassionate or innately self-sacrificing or emotionally supportive? This is unbelievable.

Have any studies contemplated that maybe women are doing better than men in these CEO positions because WE ARE SMARTER, MORE INTUITIVE, MORE COMPETENT, WORK HARDER, and are both capable of accomplishing and DO accomplish anything that a male co-worker can do, and more, and in heels? And we still have to wake up 15 minutes earlier every goddamn morning to stab chemical pigments into our eyelashes and put on pantyhose.

Please, social science researchers, give credit where credit is due. NOT my genes, but my work ethic, intelligence, and strength. Not as your mother, but as a WOMAN.