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More women at the top could spell less corporate trouble

December 15, 2015
Diversity & Inclusion

In case any doubt remains, yet another report has confirmed a link between companies that have more women in leadership roles and those with better returns for investors.

In a recent study, the number crunchers at MSCI, a research-based index and analytics firm, looked at more than 4,200 companies and found that those with more women at the top had returns on equity of 10.1 percent per year, compared with 7.4 percent for those without.

That finding mirrors other results, such as a comprehensive report from Credit Suisse. But MSCI broadened its definition of “strong female leadership” to include companies that not only had a female CEO but also had at least one additional female board director.

The study found companies that meet this definition of strong female leadership were more likely to succeed on another surprising measure, beyond return on equity. There were “fewer instances of governance-related controversies such as cases of bribery, corruption, fraud and shareholder battles,” the study reports. The companies with the worst gender diversity on their boards had 24 percent more controversies than their country’s average, between 2012 and 2015.

The study is careful to note that it’s unclear whether having those women at the top actually led to better performance as well as less fraud and corruption—or if companies with more progressive, insightful and stand-up business practices tend to promote and hire more female leaders. The latter explanation is certainly a possibility, as is the idea that both could be at play. Still, extensive academic research has shown that diverse groups are more likely to be innovative and better at decision-making.

Perhaps the most interesting finding of the study, however, is its projection for the fastest way to make real headway on solving the slow progress of getting women into more directors’ chairs.

Unsurprisingly, if things continue as usual on a global basis—where women fill roughly 16 percent of director seats as they come open, MSCI reports—it will take until 2027 for women to hold 30 percent of global board seats. Yet if more board seats turned over faster, even if women captured the same percentage of them, it would significantly speed up the progress. MSCI’s analysis shows that between 2009 and 2015, an average of 7.9 percent of board seats turned over. If that number were boosted to just 10 percent, 890 more seats would open up each year—helping women capture a third of the total share of board seats by the year 2020 rather than 2027.

The biggest obstacle to getting more women onto boards doesn’t appear to be having enough qualified candidates. Nor does it appear to be bias, at least not on its own. Rather, it may well be the slow rate at which boards and their directors—the vast majority of whom are still older men—decide it’s time to move on.

Just 3 percent of S&P 500 companies now have explicit term limits for their directors, according to the executive search firm Spencer Stuart. And the percentage of boards with mandatory retirement ages has actually fallen slightly in the last 10 years. Of those, about a third set the age limit at 75, compared with just 8 percent that had such a high age limit a decade ago.

Given this, boards may have more control over closing the gender gap than they think. Of course, to move the dial quickly, more directors will have to let go of seats—and the money that comes with them. The average board director after all now makes a quarter million dollars a year.

By Jena McGregor

Source: Washington Post

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