Please ensure Javascript is enabled for purposes of website accessibility

This Secret Weapon Could Save Your Stocks

By Alyce Lomax – Updated Apr 6, 2017 at 10:59AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The presence of women in the boardroom could be a little-known advantage for shareholders.

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Avon Products, Inc. Stock Quote
Avon Products, Inc.
AVP
Pepsico, Inc. Stock Quote
Pepsico, Inc.
PEP
$163.26 (-2.01%) $-3.35
Intel Corporation Stock Quote
Intel Corporation
INTC
$25.77 (-2.31%) $0.61
American Tower Corporation Stock Quote
American Tower Corporation
AMT
$214.70 (0.46%) $0.98
Xerox Corporation Stock Quote
Xerox Corporation
XRX
Teradyne, Inc. Stock Quote
Teradyne, Inc.
TER
$75.15 (-2.62%) $-2.02

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
326%
 
S&P 500 Returns
102%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.