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.