Does equity rocket with a greater female presence in boardrooms?

Does equity rocket with a greater female presence in boardrooms?

The increasing focus on the gender composition of company boards, is fired, partly by the fact that some studies show significant outperformance by companies with women on boards, though no one has yet been able to show a direct link between the two.

The latest research by MSCI, an independent provider of research-driven insights and tools for institutional investors, shows that companies in the MSCI World Index with strong female leadership generated a Return on Equity of 10.1 percent per year versus 7.4 percent for those without. The study did not find a direct causal link between women directors and better outcomes. However the study also estimates that  based on current trends, women are unlikely to comprise 30 percent of directorships in publicly held companies until 2027.

Diverse compositions

Academic research in management and psychology has long shown that groups with more diverse compositions tended to be more innovative and make better decisions (some researchers believe that women are more risk averse). MSCI found that companies lacking board diversity suffered more governance-related controversies than average.

The research, however, did not locate strong evidence that having more women in board positions indicates greater risk aversion.

Earlier goals 

The possibility of performance benefits coupled with non-financial studies suggesting diversity could improve decision-making have been cited by both global asset owners and advocacy groups in support of efforts to promote a 30 percent global female director goal.

The MSCI is suggesting  two alternative approaches to achieve the 30 percent target at a faster pace:

  • The Accelerated Conversion approach would double the proportion of new board seats taken by women reducing the 30% estimate by five years, and;
  • The Accelerated Turnover approach would keep the current rate of women taking new board seats at the historical rate, but turnover of existing board seats could increase resulting in a less disruptive “refresh” achieving the 30% target by 2020.

More details of the MSCI report can be found here: https://www.msci.com/www/blog-posts/women-on-boards-global-trends/0263383649