Should women have as much of an opportunity to lead companies as men? Of course. But, as the momentum of the status quo rolls on, the male-dominated corporate board has persisted. If working toward equality itself isn't the catalyst needed for change, maybe recent studies of company performance are.
In short, women on boards have been shown to improve a company's performance. Let's see why that is.
Boom times versus gloom times
A Credit Suisse study (link opens PDF) found that over the past six years, companies with at least one female board member outperformed those with no female presence. Companies with a market capitalization larger than $10 billion outperformed their women-less peers by 26% over the six years, while those smaller than $10 billion outperformed by 17%. However, this outperformance wasn't spread equally across the years.
It turns out that during the relatively bullish years of 2005 to 2007, there was basically no difference in returns. The all-male corporate boards performed just about the same as those with women. But when markets turned bearish from 2008 onward, the outperformance grew. One might note that typically defensive stocks, like consumer goods and health care, usually have a higher representation of women on their boards, so of course the defensive stocks would perform better in bad times. Don't worry, Credit Suisse corrected for this to make their results "sector-neutral."
How else did these companies outperform?
Less risk, more reward
According to the study, companies with at least one woman on their board had an average return on equity of 16% compared to all-male boards' 12%. They typically shed debt faster when things got rough. And, net income growth averaged 14% compared to 10%.
If you're a man, you might be wondering what you lack, and if you're a woman, you might be wondering what you bring to the table. Let's see just why this difference in performance might occur.
Different instincts
The first reason for better performance could be simply the greater diversity within the corporate board. Many studies have concluded that more diverse groups lead to discussions that produce better solutions, and that the group intelligence was higher when members were more "socially sensitive" to others. Other reasons include mixing in a different type of leadership style that women usually exhibit, and reflecting the views of the typical household decision-maker (women are said to control 73% of household spending decisions in the U.S.).
One of the greatest differences, however, is that women tend to be more risk-averse. While this doesn't help in the boom times, it helps account for the outperformance in gloomier times.
Whom to watch
The group 2020 Women on Boards hopes to increase the proportion of women on corporate boards in the U.S. to 20% or greater by 2020. In the meantime, the group has catalogued the presence of women for over 1,000 companies. What are some public companies that have already met this 20% threshold?
Women occupy 27% of the board seats at Akamai
DSW's
At Wal-Mart
At General Mills
And finally, if you're sold on the idea that women really make a difference, Hewlett-Packard
Equality and diversity
With further proof of the positive effects that women on corporate board positions have, it's good that companies are bringing on more females. And hopefully this proof, with the principles of equality, will be enough of a spark to bring faster change. Meanwhile, as investors, you can demand more diversity on your board -- both for society and your portfolio's returns.
Women can give old, stodgy investors new viewpoints, too. Peter Lynch famously invested in Hanes after his wife raved about the L'eggs she was wearing. He returned 30 times his investment. For similar kinds of stocks, check out our free report: "Middle-Class Millionaire-Makers: 3 Stocks Wall Street's Too Rich to Notice."
