Diversity Deep Dive Part 1: Gender Diversity & Company Performance

This article is the first of a two-part dive into global boardroom diversity. Stay tuned for part two...

 


The last year and a half have been particularly challenging for women in the workforce. According to a report by Pew Research, over 11.5 million women lost their jobs as a result of the pandemic as compared to 9.5 million men - and that was just in the U.S.! But despite these numbers, women continue to take steps towards equity on corporate boards. 

Equilar’s new Gender Diversity Index finds that as of the fourth quarter of 2020, 23.5 percent of all board seats on the Russell 3000 - which tracks the performance of the 3,000 largest public U.S. companies - are held by women. That’s up from 21.5 percent in 2019, 18.5 percent at the end of 2018, and 15 percent in 2016.

Only 71 companies have boards that are at least half female — just 2.4% of the total. That adds up to a mind-bending fact: there are more than twice as many companies that have no women on their board, as there are companies with half-female boards. Equilar

While there is still a long way to go to achieve gender parity - these steps are positive. And the companies that have appointed women to their boards - especially those with multiple women - are reaping the benefits.

 

Why do we need gender-diverse boards?

Because we see boards with more women perform better. A board of directors is there to represent shareholder interest, and shareholders are - well - diverse! They are not all middle-aged white men; men and women - young and old - hailing from different races, sexual orientations, and socioeconomic classes. So what happens at the board level signals the company values to shareholders. 

Several studies, including ones by McKinsey & Company, BCG, and Deloitte, have shown a correlation between diverse leadership and a company’s financial performance. In fact, stock from companies with more diverse boards - specifically those with more women - outperformed their competitors.

For gender, the executive team shows the strongest correlation. We found that having gender diversity on executive teams, specifically, to be consistently positively correlated with higher profitability across geographies in our data set, underpinning the role that executive teams—where the bulk of strategic and operational decisions are made—play in the financial performance of a company. - McKinsey & Company

 

How many women need to be on a board for it to do better? 

According to Catalyst, women need to hold at least three board seats to create a “critical mass,” leading to better financial performance overall. Furthermore, when critical mass is achieved, it’s more likely that an environment emerges that encourages more innovation, creativity, and collaboration - which benefits the organisation in the long run. 

Research from scholars and organizations has found that women need to hold at least three board seats to create a “critical mass,” leading to better financial performance). Catalyst

It’s also crucial for women to stay on the board for some time - not come on for one year and then leave. Typically, women have shorter tenures on a board than men, but when women stay, it changes the dynamic, encouraging more women to join and more diversity of thought.

Women holding leadership positions on boards is positively associated with other women directors having longer board tenures. Catalyst

The long and short of it is diverse boards breed positive outcomes, and having women on a board is key to an organisation’s success. So now is the time to take a look at your board and take count - because your stakeholders already are.

 

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