Gender Inequality

It’s official: companies with women on the board perform better


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Gender Inequality

Companies with strong female leadership deliver a 36% higher return on equity, according to the index provider MSCI.

The study analysed the 1,643 companies that are covered by the MSCI World Index and found that organizations with strong female leadership scored an average 10.1% return on equity from the end of 2009 to September 2015, compared with 7.4% for companies without women at the most senior levels.

MSCI defines strong female leadership as those companies that have three or more women on the board, or a female CEO and at least one other female board member.

“Given the limited historical data, it cannot be clearly established why companies with stronger female leadership might demonstrate some superior financial characteristics,” the authors said in the report. “However, academic research in management and social psychology has long shown that groups with more diverse composition tended to be more innovative and made better decisions.”

The research also shows that companies with more women on their boards are less likely to be caught up in corporate scandals – companies ranked in the bottom quarter in terms of gender diversity on their boards were hit by 24% more governance-related controversies than average.

The findings will help to shed more light on the benefits of women in the board room. A previous study of companies in the United Kingdom, United States and India by the accountancy firm Grant Thornton found companies perform better when they have at least one female executive on the board.

The research might also encourage shareholders to call for change at the companies they are invested in.

Women make up less than 17% of Nasdaq 100 boards in the US and just a quarter of FTSE 100 boards in the UK. However, there is a global push to increase gender diversity on corporate boards against a backdrop of more inclusive leadership in government and industry.

Last month, Canada’s new Prime Minister Justin Trudeau created the country’s first cabinet with equal numbers of men and women. In Germany, a new law will ensure a minimum of 30% female representation on the boards of its largest companies by next year. Meanwhile, boards in Norway and France already surpass that number. A national campaign in the US, called 2020, has a more modest goal: 20% women directors by 2020.

The World Economic Forum’s Gender Gap Report 2015 reveals that the annual pay for women has only just begun to equal the amount men were earning 10 years ago. This means the world is losing enormous amounts of talent from the workforce – which in turn has an impact on the number of women rising up through companies to reach senior executive level.

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