Print this article
Gender Diversity Is Key To Corporate Performance - New Credit Suisse Research
Wendy Spires
1 August 2012
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. Having identified clear outperformance among those firms with females
on their boards, Credit Suisse tried to unpick the reasons why this
might be the case, and came up with seven reasons why greater gender
diversity could be correlated with stronger corporate performance: 1. A signal of a better company: the trend may be attributable to
reverse-causation, whereby big, successful, high-profile companies are
more likely to appoint females to their boards. However, Credit Suisse
notes that even in an isolated comparison of the large cap companies the
outperformance of companies with women in the board held up. 2. Greater effort across the board: academic research has shown that
majority groups improve their own performance in response to minority
involvement - producing better average outcomes in more diverse
environments. 3. A better mix of leadership skills: studies suggest that companies
with female board members tend to have a better balance in leadership
skills within the company, women being deemed better at mentoring and
clearly defining responsibilities, for example. 4. Access to a wider talent pool: the average proportion of female
graduates was 54 per cent in 2010, up from 51 per cent in 2000
- therefore any company that achieves greater gender diversity is more
likely to be able to tap into the widest possible pool of talent, Credit
Suisse said. 5. A better reflection of the consumer decision-maker: women tending
to be in charge of household spending decisions means that female
representation may enhance a board’s understanding of customer
preferences. 6. Improved corporate governance: academic research indicates that a
greater number of women on the board improves performance on corporate
and social governance metrics. 7. Risk aversion: Credit Suisse’s research showed that stocks of
companies with women on the board are more likely to have lower levels
of gearing than their peer group where there are no women on the board.
Lower relative debt levels have been a useful determinant of equity
market outperformance, delivering average outperformance of 2.5 percent
per annum over the last 20 years and 6.5 percent per annum over the last
four years, the firm said. “This in-depth study provides investors with striking evidence that
greater gender diversity is a valuable additional metric to consider
when evaluating investments. The results of our analysis are irrefutable
and for the first time offer a global view of this topic and a
compelling explanation of why gender diversity adds value,” said Stefano
Natella, co-head of securities research and analytics. The issue of female board representation is a complex one which has
at times sparked controversy, such as when various politicians suggested
that more female board representation at banks would have averted the
financial crisis by reining them in from riskier activities. Another
controversial issue is whether firms should use female board quotas as a
way to kick-start diversity or whether things should be allowed to
develop organically and on merit alone.