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.
