A recent report from Credit Suisse has confirmed what many already know: companies with women on their boards perform better than companies with all-male boards. In fact, the study found that shares of companies with women on their boards outperformed comparable firms with all-male boards by 26 percent. Companies with all-male boards also saw lower revenue growth and higher debt-to-equity ratios than those with female board members.
Interestingly, the performance gap seems to have increased since the 2008 financial crisis, helping to confirm some of the existing research on why diversity on boards is good for company performance. Including diverse perspectives on boards helps to improve the quality of decision-making, increase innovation, and create greater independence from managers, allowing the board to more effectively perform its crucial monitoring functions. As Ernst and Young reported in 2009, groups with greater diversity outperformed less diverse groups “by a substantial margin.” And, as Stephenie Foster discussed in a recent Q&A, more women in private-sector leadership roles can also have broader effects on society and politics.
Given their greater ability to manage risk, make difficult decisions, and encourage innovation, it makes sense that companies led by diverse boards have done better during the financial downturn. But despite the clear businesses advantages, some 36 percent of U.S. companies still have boards which are entirely male, and a third of Fortune 1000 companies have only one woman on the board. The 2020 Campaign aims to increase the overall proportion of women on company boards to 20 percent by 2020. The European Union has set an even more ambitious goal of 40 percent. Both will take years of hard work to achieve, even as evidence of the bottom-line benefits of having female directors continues to pile up.
In emerging markets, the potential gains may be even greater. In many countries, it is not uncommon for women to own their own (usually small) businesses, but there are far fewer women in the boardrooms of major companies — women make up just 10 percent of directors globally, according to GMI Ratings’ latest survey. Despite some outliers like South Africa, where the percentage of female directors is 17.4 (higher than the U.S.), developing countries generally have far fewer women serving on company boards than in the U.S. and Europe. In many Middle Eastern countries, fewer than 1 percent of directors are women. With all the challenges of doing business in developing countries, and the many opportunities for innovation and “outside the box” thinking, encouraging more female directors in developing countries could yield substantial economic benefits for forward-thinking companies.
In every country, though, including women on boards is not just a matter of equity and fairness. It is just plain good business.