Investment Strategies

Gender Diversity Key To Corporate Performance – New Credit Suisse Research

Wendy Spires, Deputy Group Editor, 1 August 2012

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Ensuring female representation on boards is about more than equality quotas and can actually have a massive impact on corporate performance - and therefore investment picks - a new study by the Credit Suisse Research Institute has revealed.

Ensuring female representation on boards is about more than equality quotas and can actually have a massive impact on corporate performance - and therefore investment picks - a new study by the Credit Suisse Research Institute has revealed.

The Swiss banking giant found that large-cap companies with at least one woman on the board have outperformed their peers with no women on the board by 26 per cent over the last six years. Interestingly, the positive impact made by female board members only emerged after the financial crisis – before then, when economic growth was relatively robust, there was little difference in share price performance between companies with and companies without women on the board, Credit Suisse said. But following the crisis and the knock-on deterioration in the macro environment, those companies with female representation at board level “strongly outperformed” those without.

Key trends

In evaluating the effect of board diversity on companies’ success, Credit Suisse looked at the average financial metrics of both kinds of companies and found several very clear trends.

The first is that firms with female board representation tend to enjoy a higher return on equity: the average ROE of companies with at least one woman on the board over the past six years was 16 per cent, while the corresponding figure for those with no female board representation was 12 per cent.

The second key finding was that those firms with women on their boards tend to exhibit slightly lower gearing. The net debt to equity of companies with no women on the board averaged 50 per cent over the past six years, while those with one or more had a marginally lower average of 48 per cent.

Thirdly, those companies with females on the board showed higher price-to-book multiples, in line with higher average ROEs: the aggregate price-to-book for companies with women on the board was 2.4x, versus 1.8x for those without.

Lastly, Credit Suisse found that companies with at least one female board member showed better growth over the six-year study period. These firms showed an average net income growth of 14 per cent, against an average of 10 per cent for those with no female board representation.

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