Gender diversity at board level – a financially significant issue?

Attention is focused on whether or not increasing the amount of women serving on boards may create value for shareholdersBusinessmen and businesswomen in meeting

A public consultation has been launched to help increase women’s participation at senior levels in companies. Photograph: Getty Images/Glowimages

The debate around how to address gender inequality at board level is gaining momentum. Regulators, politicians and shareholders are each stepping up pressure on companies for greater board diversity as part of a drive for better governance.

Early this week, European justice commissioner Viviane Reding launched a public consultation to generate proposals – including possible legislation – to increase women’s participation at senior levels in companies.

It’s just over a year since Lord Davies published a UK government-backed report that set a target for a minimum of 25% female board representation in FTSE-100 companies by 2015, but stopped short of compulsory measures.

Since the launch of the Davies report, progress on improving the gender balance on UK boards has been slow. According to the 30% club – a group of chairmen voluntarily committed to bringing more women onto UK boards – only 15% of FTSE 100 board directorships are now held by women. While the ratio of female appointments has doubled over the last few years, it is still only 27%.

Looking beyond the FTSE 100, there is little evidence of significant progress in closing the gender gap. EIRIS data shows that 46% of UK companies listed on the FTSE All Share Index have no women on the board, whereas 15% of north American companies in the FTSE All World Developed Index have no women on the board, and in the Asia Pacific region the figure is 73%.

Gender representation forms part of a wider focus on board effectiveness and diversity, which encompasses other features including age, ethnicity, background, education and experience. Increased diversity (including gender balance) not only better represents the staff in a company but also its clients, customer base, supply chain and potentially the different regions across which it operates.

Carrot or stick?

While a growing number of companies and investors acknowledge that greater board diversity is a good thing, opinions differ as to how best to achieve this. Some argue for quotas to force UK companies to put a minimum number of women on boards. They point to the rise in female representation at board level in countries such as Norway and France, which has occurred subsequent to quotas being introduced in these countries.

However, others argue that quotas undermine the principle of equality, are patronising to women and can result in situations whereby women are appointed as mere figures-heads who take on multiple boardrooms to fill quotas. Instead, they argue for a more business-led approach whereby directors are appointed on merit and business leaders take affirmative action in moving voluntarily towards a better gender diversity.

As the debate continues, attention is focused on whether or not women on boards may create value for shareholders, or put another way, to what extent is gender diversity a financially significant issue?

A forthcoming study conducted by academics from the Centre for Responsible Banking & Finance of the University of St Andrews and thePrinciples for Responsible Investment Academic Network sets out to explore this. Focusing on more than 1,500 companies from 26 developed countries, over a 90-month period, the study combines data from EIRIS that categorises companies according to the percentage of women on their board with financial performance data. At the global level, larger companies are found to have more women on their boards, probably due to their high visibility and consequently outside pressure for greater diversity.

Austria, Belgium, Germany, Greece, Hong Kong, Ireland, Italy, Japan, New Zealand, Portugal, Singapore, Spain and Switzerland do not have any companies that have more than 33% women on their boards. Additionally, no Greek, Irish or Portuguese company has more than 20% women on its board of directors. On the other hand, the Scandinavian countries of Finland, Norway and Sweden do not have any listed company belonging to the lower category (ie no female representation at board level).

Globally, a value-weighted portfolio of those companies with more than 33% women on boards of directors is found to generate significant positive excess financial returns. In the US, those companies with more than 33% of women on the board are found to outperform market and investment style benchmarks.

In Greece and Italy, the situation looks less promising for businesswomen, as those companies with no women on the board perform well. While there are other factors that may account for positive and negative returns, the study’s findings tend to support initiatives that bring women on corporate boards in developed countries. However, it is important to note that female directors are also likely to add value in many qualitative ways, which may not be discernible directly in the short term.

It’s clear that a greater impetus is needed if real progress is to be made in tackling gender inequality. Investors are ideally placed to challenge the composition and diversity of boards. Through direct engagement, shareholders can put pressure on companies to take affirmative action in moving towards a better gender balance at all levels in their organisations.

Mark Robertson is head of communications at EIRIS and editor 

Source / Fuente:

Author / Autor: Mark Robertson

Date / Fecha: 08/03/12

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