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Boardroom Diversity Boosts Performance

By December 9, 2015HR Research
Boardroom Diversity Boosts Performance | HR Solutions

New research has found that company boards with women on them deliver a 36% better return on equity than those without.

Stock market index company MSCI looked at over 1,600 companies for the report. Their research found that companies with ‘strong female leadership’, defined as a female CEO and at least one other woman on the board, generated a return on equity of 10.1% annually. Those without this board diversity generated a return of only 7.4%.

The study also found that companies that lack in board diversity tended to suffer more than the average number of governance-related controversies.

It would be easy to conclude that board diversity leads to ‘superior financial characteristics’. However MSCI was reluctant to comment on causality due to their limited historical data.

However Linda Eling Lee, Global Head of ESG Research for MSCI said: “Academic research in management and social psychology has long shown that groups with more diverse composition tended to be more innovative and made better decisions. In our research, we found that companies lacking board diversity suffered more governance-related controversies than average.”

“We did not, however, find strong evidence that having more women in board positions indicates greater risk aversion.”

The report also looked at the barriers that prevent women from reaching board level. Whilst the results indicated that the leadership experience of male and female directors was broadly similar at non-board level, MSCI concluded that the glass ceiling effect was the cause for women having less upper management experience than men. This is despite the fact that women generally outpaced their male colleagues when it came to achieving ‘advanced educational degrees’.

The study also identified regional differences. On average European companies have a higher number of women on boards than US companies, but US companies are more likely to appoint a female CEO or CFO.

Despite the apparent benefits of board diversity, the proposed EU target of making 40% of board members women by 2020 took another hit with the report. MSCI found that if businesses stick to their current approach, that figure would not even hit 30% until 2027.

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