Companies With Women on Their Boards Perform Better

A blog about business and economics.
July 31 2012 12:54 PM

Companies With Women on Their Boards Perform Better

The massive underrepresentation of women on corporate boards is one of the most curiously underdiscussed gender equality issues in America today. It's glaring because I've really never heard anyone stand up and say that they think the selection of corporate boards is a highly meritocratic process tightly constrained by narrow considerations of economic efficiency. Everybody knows that boards don't really run companies, and everybody knows that board composition is highly idiosyncratic. Since absolutely nobody has any idea what constitutes qualification to be on a board or what board members are supposed to do, this is one of the realms where it's easiest to hit an arbitrary gender diversity goal.

Boards don't have many women on them, because few firms have decided to hit ambitious gender diversity goals. But a new study (via Think Progress) from Credit Suisse suggests that they should:

There has been considerable research on the impact of gender diversity on business. This report addresses one key question: does gender diversity within corporate management improve performance? While it is difficult to demonstrate definitive proof, no one can argue that the results in this report are not striking. In testing the performance of 2,360 companies globally over the last six years, our analysis shows that it would on average have been better to have invested in corporates with women on their management boards than in those without. We also find that com- panies with one or more women on the board have delivered higher average returns on equity, lower gearing, better average growth and higher price/book value multiples over the course of the last six years.
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That's not a conclusive or exhaustive examination of the issue, but given the general social interest in promoting gender equity I'd say we should err on the side of encouraging companies to put more women on boards unless there's some kind of clear evidence that doing so would lead to major economic harm. But if anything, the evidence suggests the reverse. Many studies support the general point that more diverse groups make better decisions, and this study should bolster our belief that this dynamic applies to the specific case of corporate boards.

Now what could actually be done about it? Most crudely, you could pass a law simply requiring companies to hit some gender diversity target. More politically plausibly, individuals could commit to not buying shares in companies with all-male boards and could pressure institutions (universities, etc.) that they're affiliated with to do the same.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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