This Secret Weapon Could Save Your Stocks

Want better corporate governance and stronger investments? Look for businesses whose boards have plenty of female directors.

A recent study released last week by the nonprofit Women Corporate Directors showed major differences in attitudes between men and women directors regarding corporate governance and risk management.

Battle of the sexes on the board
The survey revealed that more female than male board members believed that new compensation regulations (45% versus 22%) and new proxy access rules (38% versus 17%) were necessary to rejuvenate public trust in corporate governance.

In an even more interesting twist, many more women want better corporate risk management systems; 40% of women saw that need, versus a mere 1% of the men surveyed.

Investors shouldn't underestimate the power of women on corporate boards (and in the marketplace overall). Studies show that women are often better investors than men; they are less likely to fall victim to overconfidence, and they have an increased tendency to process more disparate sources of information in the decision-making process.

Women also tend to be more patient and trade less frequently. Both are important elements of long-term thinking, whether in investment portfolios or business management. Unfortunately, too few companies are taking advantage of these talents in the boardroom.

Where the girls are
According to a Corporate Library report on gender diversity among corporate boards, as of March 2010, only 57% of S&P 500 companies have at least two women on their boards, and only 19% include three or more women in those roles.

In the entire S&P 500, a mere 14 women chair corporate boards. Of those, only Intel (Nasdaq: INTC  ) , Teradyne (NYSE: TER  ) , and Xerox (NYSE: XRX  ) have chairwomen who are not also CEOs of the companies in question.

The Corporate Library's report pointed to several other major companies that do have at least two women in positions of responsibility on corporate boards. At Ventas (NYSE: VTR  ) and Xerox, women fill four major roles, including board chair, CEO, and the chairs of governance and investment committees. PepsiCo (NYSE: PEP  ) , American Tower (NYSE: AMT  ) , and Avon Products (NYSE: AVP  ) have women in three similarly important positions of power. But these short lists only emphasize the continuing rarity of a substantial female presence on most corporate boards.

Diversity rules
The so-called "wisdom of crowds" only proves itself out when the crowd includes plenty of diverse thinking in its midst.

Cognitive diversity in groups helps guard against potential bubbles and other would-be financial disasters. Groups of people whose backgrounds, temperaments, and experience encourage them to think and analyze in different ways can often make decisions more aptly and accurately. When everyone thinks the same way, things can go very wrong in investing and business.

Including more women in the boardroom could help corporations benefit from more diverse thinking, strategizing, and problem-solving. Female directors could also help companies avoid the big disasters that arise from overconfidence and arrogance.

Long-term shareholders should keep an eye on how diverse the boards of their companies are. The greater the variety of viewpoints represented, the more likely that company is to display sound judgment going forward. Female board members in particular could make the difference between real and necessary change in the corporate world, or potentially disastrous business as usual.

Check back at Fool.com every Wednesday and Friday for Alyce Lomax's columns on corporate governance.

American Tower is a Motley Fool Rule Breakers recommendation. PepsiCo is a Motley Fool Income Investor pick. Motley Fool Options has recommended buying calls on Intel and a diagonal call position on PepsiCo. The Fool owns shares of Intel, which is a Motley Fool Inside Value choice. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.


Read/Post Comments (10) | Recommend This Article (48)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 20, 2010, at 12:28 PM, bull2760 wrote:

    Funny how Avon North America has last money 3 straight years but Avon Global has made money to ease the blow. The only reason L'Oreal is even looking into buying Avon is because Avon has a strong foot hold in Latin America and Asia and sales are up in both continents. Avon needs to focus it's attention back here in the US by creating a great marketing campaign and taking care of their sales reps. Jung will be ousted as CEO of Avon, she's worn out the welcome rug, losses are mounting big time for sales in North America and she will have to answer to share holders sooner than later. I can only hope it is sooner than later.

  • Report this Comment On October 20, 2010, at 6:13 PM, PositiveMojo wrote:

    Come on Alyce, you can't be serious. A person's sex has nothing to do with good management practices and a well run organization!

    I have a brilliant wife and 3 brilliant daughters but they weren't inborn with the specialized knowledge of being good managers. These are skills that are taught. I suggest you read Jim Collins book "Good to Great" to discover what really make a great manager and a great organization.

    I know that you can do better than this.

  • Report this Comment On October 20, 2010, at 7:20 PM, bbmaven wrote:

    PositivMojo - I fear you missed the point of the article. It isn't that women are better managers than men - or worse - it is that there is a voice of a different lived experience. Diversity is an innoculation against the group think that all white, male boards are often guilty of - even if they are suberb managers.

    I agree that a person's gender has nothing to do with the ability to manage - but gender has a significant impact on one's perspective on the world - not because of biological differences - but because of socialization, expectations and the internalization of superiority/inferiority.

    An example of the value of hearing different voices that would have been very valuable to us 8 years ago - nearly 75% of people who identify as Afican Americans opposed entry into Iraq while nearly 75% of white folks were gung ho. Why do you think that was?

  • Report this Comment On October 20, 2010, at 7:48 PM, daniinLA wrote:

    I'm curious as to if there have been any studies about diversity in the boardroom that go beyond gender and race. Board members who: grew up urban/rural? served in the military? were educated abroad? etc.

  • Report this Comment On October 20, 2010, at 9:28 PM, ynor wrote:

    I agree with Alyce's analysis on women's behavioral patterns, but it's silly to think that we should shape our investment decisions based on these differences. If women are less risk takers and less aggressive, then by the rule of risk and reward, the companies they run should, as a whole, grow more slowly. As with diversity: although the benefits of diversity have been extensively underscored in corporations, and business schools, lacking is a fair discussion about its problems: friction and tension runs high, frequent misunderstandings, distrust prevails and unity suffers. Now don't get me wrong, I think diversity in the workforce is a wonderful way to engage different people to get along with each other. But let's be real here: considering the full picture, I don't see why diversity should automatically be seen as a net positive for a corporation. Maybe I'm wrong, but I'm just sharing some diversity of opinion here. ;-)

  • Report this Comment On October 21, 2010, at 6:57 AM, TMFLomax wrote:

    Thanks for the diversity of opinion, as ynor put it, in these comments, folks! I am enjoying reading these thoughts. True, an element like this may be no *guarantee* of success, but I think it's a good time to ponder how we think about who is chosen for some of these roles in corporate America and how certain folks' strengths may be overlooked and underutilized at times. And I really do believe homogeneous board composition should be contemplated as a logical weakness that could create long-term problems. Regardless, independence of thought would create a more robust dynamic, I think, and over the years I think that may have been something we haven't had too often on corporate boards, leading to major problems at times.

    Alyce

  • Report this Comment On October 21, 2010, at 5:18 PM, polenium wrote:

    Like Carly Fiorini? It's the person not the gender that counts. There plenty of women who park their moral at the door when it comes to getting ahead.

  • Report this Comment On October 21, 2010, at 9:19 PM, mikecart1 wrote:

    Worst article ever.

  • Report this Comment On October 24, 2010, at 11:54 PM, jlclayton wrote:

    An excellent article! I am a woman who worked for 10 years at a polyethylene plant with all men on my shift. Once I got some confidence, there were times when I'd look at a situation and suggest something that none of the men had thought about before--even being told that they appreciated the diversity in me having a different outlook.

    No one is better or worse due to their gender, but everyone brings in a unique perspective based on all their traits and experiences. It certainly is reasonable that a woman would bring in her own viewpoints and judgments, and those could be different from a group of men's viewpoints. The more ways a group of people can look at a situation, the better the final decision will be in my opinion.

  • Report this Comment On October 26, 2010, at 12:38 AM, easyavenue wrote:

    The time will come when something close to true diversity will be universally accepted. But as long as there are people so insensitive and insipid as to comment "Worst Article Ever," there is still much work to be done.

    Great article. Raises some even larger, global diversity questions, don't you think?

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