Sector News

Companies with strong female leadership outperform by a third

December 7, 2015
Diversity & Inclusion

Companies with strong female leadership outperform others by 36 percent in terms of return on equity, according to MSCI analysis of companies on the MSCI World Index over the last six years.

Strong female leadership ‒ defined as having three or more women on the board, a female CEO or with more women than the average in that firm’s home country ‒ scored an average return on equity of 10.1 percent from the end of 2009 through August 2015, the study shows. Companies without strong female leadership had an average of 7.4 percent.

‘Given the limited historical data, it cannot be clearly established why companies with stronger female leadership might demonstrate some superior financial characteristics,’ the study authors write. ‘However, 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.’

The study also shows that companies ranking in the bottom quarter in terms of gender diversity on their boards suffered 24 percent more governance-related controversies than average between 2012 and 2015.

As of August this year, women held 15 percent of all directorships in the 4,218 companies covered in the study, an increase from 12.4 percent last year. On the MSCI World Index, women account for 18.1 percent of all directors, up from 15.9 percent last year.

Despite the increases, MSCI says women are unlikely to account for 30 percent of all leadership positions, as organizations such as the Thirty Percent Coalition, CalPERS, CalSTRS and others advocate, until 2027 if current trends persist. At the moment, women are appointed to only 16 percent of new seats that open up on companies’ boards and the figure is rising by just 1.54 percentage points a year.

Ensuring that women receive 32 percent of all new seats on company boards, doubling the current rate, would allow companies to meet the goal of 30 percent female leadership by 2022, the research shows. Increasing board turnover rates from the current 7.9 percent per year to 10 percent could also ensure women have 30 percent of board positions by 2020.

By Adam Brown

Source: IR Magazine

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