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Study: Putting Women in Charge Makes Companies More Successful

Martin Barraud

This article is sponsored by Credit Suisse.

Gender equity has been a challenge in the corporate world for as long as there has been a corporate world. But progress towards a more gender-diverse work environment has continued throughout the years with government quotas and company-specific initiatives. And guess what? According to a groundbreaking new study conducted by Credit Suisse, companies with women in senior management positions tend to outperform their peers in key financial metrics, resulting in higher returns to shareholders.

The report, “The CS Gender 3000: Women in Senior Management,” used Credit Suisse’s unique and proprietary database “CS Gender 3000” to analyze the demographic breakdown of over 3,000 large companies employing 28,000 senior managers across all major sectors and 40 countries. They found that over the course of nearly a decade, companies with at least one woman on the board had higher return on equity (ROE) and price to book (P/B) value than those that did not. A similar conclusion can be reached when we look at top level management, and not just at the board level. Higher female participation in top management is also correlated to better ROEs and valuation metrics.  

From January 2005 through December 2013, the ROE of companies with at least one female board member was 14.1 percent compared to 11.2 percent for those with zero representation. In line with this, the report finds that since 2005, companies with female representation on their boards have been valued higher, with an average P/B value over those nine years of 2.3 times versus 1.8 times for companies with all male boards. Not surprisingly, from January 2005 through June 2014, investors in such companies have profited: the stocks of those companies with more than one woman on the board returned a compound 3.7 percent a year over those that had none.

Another notable finding of the report: female CEOs tend to be less acquisitive and more collaborative in their decision-making processes, factors that might contribute to better company performance. “We find that male CEOs tend to be more acquisitive and less prone to divest underperforming businesses ” explained Stefano Natella, one of the study’s authors and Head of Global Equity Research at Credit Suisse. "We also found that greater diversity, along with female CEOs, tend to mean higher leverage, in stark contrast to the generally accepted association of women and financial conservatism."

Globally the percentage of companies with at least one woman on their board has increased to 12.7 percent from 9.6 percent in 2010, but sector and regional differences exist. The energy sector, for example, has the lowest female board representation—with women holding only 9.4 percent of board positions—while the sector with the highest percentage, consumer staples, boasts 16.3 percent. However, it is at the country and regional level, rather than between sectors, that the report finds greater differences in representation: Women sit on 39.7 percent of boards in Norway, 13.7 percent in the United States, and only 1.6 percent in Japan.

One way to precipitate such change is the introduction of quotas, a tactic many countries have employed, especially in Europe. Natella believes that quotas can be a good starting point but can also backfire, in instances where a woman is appointed simply to meet the quota and not due to her talents. In other words, as a token female board member.

“When Norway instituted a 40 percent quota, it created a new market for female board members. There was a talent pool of women who could potentially serve on a board. Some of them went for more training, and then some were hired. So that’s the positive side of the quotas,” said Natella. “But quotas are not the answer. If you’re a woman, you want to be appointed because you deserve to be appointed, not because the company had to tick a box.”

“Culture is probably one of the biggest drivers of the gender gap,” said Natella. “It’s very difficult to change the culture of a country. That being said, it is happening.” The study predicts that as the global economy becomes more and more integrated and companies become more and more global in their client base and management, the sector pull will gradually lead the way and force cultural change.

Natella believes that increased transparency and wide-ranging policy changes can prompt more enduring change than quotas. If companies were required to publicly disclose their diversity numbers, for example, it could have a variety of effects, from increasing their attractiveness to potential female hires to offering investors another measure to use in stock selection. Some already do: Google, for example, publishes its workforce demographics voluntarily.

If everyone were required to report the figures that Google does, change would happen more quickly, says Natella. “Companies that have not focused on this issue may find that investors will demand that they focus on it and realize that they need to adopt new policies. So far, research (and our research in particular) shows that it is not just the ‘politically correct’ thing to do; it also has the potential to improve companies’ profitability.”