Board diversity has become attractive to wealthy investors. Wealthy investors are known for having preferences with their money. Data has been presented over the past few years, showing how diversity in the boardrooms has given stronger performance by the boards. Investors have therefor now added diversity to their preferences and are investing their money in companies that at least boast of 25% female membership in their boardrooms.
Diverse non-academic reports have indicated that diverse leadership evolves to corporate success. An analysis by McKinsey & Co. noted that there is a correlation between board diversity and positive financial performance. Credit Suisse Group AG in its 2019 report discovered a “performance premium for board diversity”.
McKinsey & Co. Analysis
According to a 2019 analysis, companies that are in the top quartile for gender diversity on boards were 25% more likely to register above-average profitability compared to companies that are in the fourth quartile. Furthermore, the analysis found that the greater the representation, the more likelihood of outperformance.
Companies that had more than 30% women executives were likely to outperform companies whose percentage was from 10 to 30. These companies would, in turn, outperform those that had even fewer women executives.
There is a 48% substantial differential likelihood of outperformance that is between the most and the least gender-diverse companies.
The report noted that progress in female representation has been slow. In the companies that were in the initial 2014 data set, female representation in executive boards grew from 15% in 2014 to 20% in 2019.
According to their global data set which starts in 2017, gender diversity rose by one percentage point. This is from 14% in 2017 to 15% in 2019.
Credit Suisse Research Institute’s Report
‘The CS Gender 3000 in 2019: The changing face of companies’ report shows that:
- Female representation on executive teams globally doubled in a decade
- There is a material correlation between companies that have high up the participation of women that are in decision-making roles and their corporate performance and stock market
This report analyzed the gender composition of the executive teams of more than 3,000 companies. These spanned 56 countries and comprised 30,000 executive positions.
According to the report, the percentage of women on executive teams worldwide stands at 20.6%.
While not arguing cause and effect, previous reports by CSRI discovered strong correlations between boardroom diversity and a share price outperformance. There also arose a coincidence of higher levels of profitability when industries were judged for like.
According to the Bloomberg terminal, there were 7,655 securities reported in the most recent round of 13Fs. 28 were from companies that had boards composed largely of women. This is just 0.37% of the total.
By mid-March, the corporation with the largest percentage of women on the board was Travelzoo. It had four of its five board seats filled by women which is 80%.
In relation to market value, Autodesk Inc. was the biggest company. It had five women on its ten-member board.
Why the emphasis on board diversity
This January, Germany made headlines due to their bold step towards gender inclusivity. Germany now requires stock exchange-listed companies that have executive boards comprising more than three, to have at least a woman on the board.
The cabinet in Germany approved this legislation. According to the Justice Ministry, it would affect around 70 companies. 30 of these companies currently do not have any women on their boards.
According to a report by AllBright Foundation on the proportion of women on executive boards, Germany lagged behind in encouraging women in leadership. Why are investors and governments pushing to have more women occupy executive boards?
- It is a reflection of the market. The world comprises people who identify as men, women, and non-binary. As such, for businesses to grow, they need to consider all kinds of customers when coming to a decision. Opening doors to a culture of diversity allows companies to have wider perspectives and ideas.
- it promotes diversity and innovation. By promoting diversity, you bring innovative ideas to your industry, products and services. Furthermore, it also benefits current employees. When employees see people who are like them occupy positions that they aspire to, they feel more confident and valued in their posts.
- By having more women on these executive boards, businesses are able to make fairer decisions. A study conducted at McMaster University in Canada discovered that women directors outperformed their male counterparts in fairer decision making. The study surveyed 600 board members and 75% of them were male. Fair decision making is crucial in a business. It helps to uphold the company’s core values. It also helps in the day-to-day running of the business.
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