Companies with women on their boards do better—and not just because they know shampoo.

Companies with Women on Their Boards Do Better—And Not Just Because They Know Shampoo

Companies with Women on Their Boards Do Better—And Not Just Because They Know Shampoo

The XX Factor
What Women Really Think
Dec. 8 2015 5:35 PM

Companies with Women on Their Boards Do Better—And Not Just Because They Know Shampoo

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Women can think about numbers and graphs and flowcharts, not just the products they use.

Photo via Shutterstock

Add one more report to the long list of data vouching for the importance of women on corporate boards. A new study of more than 4,200 public companies from global market index provider MSCI reports that those with “strong female leadership” enjoyed a 36.4 percent greater return on equity over a five-and-a-half year period than companies without a critical mass of women at the top.

Christina Cauterucci Christina Cauterucci

Christina Cauterucci is a Slate staff writer.

For the purposes of the study, MSCI defined strong female leadership as having a board of directors with at least three women, which research suggests comprises a critical mass for decision-making influence, or a percentage of women that’s higher than average in the company’s country. Strong female leadership isn’t a common trait in today’s corporate terrain: In February, Ernst & Young found that women hold 16 percent of board seats for S&P 1500 companies—fewer seats than those held just by men named John, Robert, James, and William. Only 20.1 percent of the companies MSCI surveyed had at least three women on their boards.

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Between December 2009 and August 2015, MSCI found that the companies with more gender-balanced boards marked an average 10.1 percent return, compared to a 7.4 percent return for companies with man-heavy boards. The study doesn’t claim to prove that strong female leadership causes better financial returns—a board with more women could be a symptom of a company that tries hard and embraces progressive change, which would affect returns in its own way. “However,” the study notes, “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.” MSCI also found that companies with less gender-diverse boards were more likely to be plagued by “governance-related controversies” like bribery, corruption, and fraud.

Despite mounting evidence that companies have much to gain by expending extra effort to diversify their boards, the message has been slow to sink in. Last year, Fortune reported that in the past decade, the proportion of female board directors of Fortune 500 companies inched up a mere 3.3 percent.

Messaging may be partly to blame for this corporate mental block. Today, the New York Times presents the case study of TSG Consumer Partners, a private equity firm that had only one female investor in 2004. Now, a full half of the firm’s staff is female, a far better count than the average North American private equity firm, whose employee ranks are just 13.7 percent women. Leslie Picker writes:

For Chuck Esserman, the firm’s co-founder and chief executive, and Jamie O’Hara, the firm’s president, the gender balance pursuit was not just the politically correct thing to do, but they also saw it as a competitive advantage. The 28-year-old firm focuses exclusively on companies that make consumer goods, like Glaceau Vitaminwater and Pureology, which manufactures shampoo and conditioner. Because women make the majority of purchasing decisions in the household, TSG wanted their expertise at the table.

Later in the piece, the president of a firm that works with TSG lauds TSG’s efforts to bring more women into its decision-making ranks. “It’s an important component in the way they approach the market—their ability to talk to a management team that’s focused on cosmetics, beauty, fashion, where these women have enormous insights,” he says. 

It's frustrating that, in 2015, firms must still justify their efforts to put more women in leadership positions by harping on just one element of a woman's expertise: her personal, gender-specific experiences. When companies push for gender diversity, they're more likely to promote and appoint women who are deserving candidates—who are great at their jobs but might have been passed over for the usual suspects. Companies with women on their boards make better decisions because of their diverse perspectives in all aspects of the business, not just because women use the products the companies are selling.