Performance Anxiety? Companies with Women on Boards Do Better Than Those Without

For large public companies, having at least one female board member has proven to contribute to positive performance, says a new six-year study by Credit Suisse.

The study, which analyzes the performance of nearly 2,400 large companies across the globe from 2005 onward, shows that companies with at least one female board member deliver higher average returns on equity, lower gearing, better average growth, and higher price to book value multiples. A gearing ratio is a measure of financial leverage and shows the degree to which a firm is funded by owners versus creditors.

“This in-depth study provides investors with striking evidence that greater gender diversity is a valuable additional metric to consider when evaluating investments,” said Stefano Natella, co-head of Securities Research & Analytics at Credit Suisse. “The results of our analysis are irrefutable and for the first time offer a global view of this topic and a compelling explanation of why gender diversity adds value.”

The materials sector, along with information technology, came in at the bottom of the study, with 52.5 percent of the companies in each sector lacking even one female board member.

Companies with at least one woman on their board had an average return on equity of 16 percent versus 12 percent for those without. Net debt to equity of companies with no women on the board averaged 50 percent compared to 48 percent for those with at least one woman. Aggregate price to book value for companies with women on the board (2.4x) was on average a third higher than the ratio for those with no women on the board (1.8x). And net income for companies with women on their boards averaged 14 percent for the past six years compared with 10 percent for those without female representation.

While the materials sector came in near bottom, the mining industry has female leaders at the top of their game. American Cynthia Carroll became CEO of Anglo American (LSE:AAL) in 2007. Carroll was not only the first woman to lead the company, but also the first non-South African. The Financial Times reported that Carroll’s double-outsider status revolutionized the mining company’s culture and gender diversity.

Australian mining tycoon Gina Rinehart is the chairman and director of Hancock Prospecting. The privately-owned company, which she took over in 1992 following her father’s death, is a mineral exploration and extraction firm that holds the rights to some of the largest land leases in the Pilbara region of Western Australia, which contains some of the world’s largest iron ore deposits. Rinehart is among the world’s richest women and in 2011 became the first woman to top BRW’s Rich 200 list.

Mary Curtis, director of thematic equity research at Credit Suisse in Johannesburg and an author of the report, said, “[t]raditionally some industries have just never really been seen as the domain of a woman, like some of the mining industries or heavy-capital goods industries. Women haven’t generally been promoted through the ranks of those industries and then made it up to board level.”

Across all industries and regions of the world, however, the report shows a higher representation of women on boards from the end of 2005 to the end of 2011 — the duration of the study.

An important finding of the study is that between 2005 and 2007, when economic growth was relatively robust, there was little difference in the share price performance of companies with or without women on their boards. All of the outperformance came post-2008, when the macro environment deteriorated and volatility increased.

“In other words, stocks with greater gender diversity on their boards generally look defensive: they tend to perform best when markets are falling, deliver higher average ROEs through the cycle, exhibit less volatility in earnings and typically have lower gearing ratios,” the report says.

Securities Disclosure: I, Karan Kumar, hold no direct investment interest in any company mentioned in this article.