Having more women on a corporate board is correlated with that company paying less for acquiring other companies and reducing the number of acquisitions it makes, according to a new study by researchers at the University of British Columbia in the Journal of Corporate Finance. “On average, merger and acquisition transactions don’t create shareholder value, so women are having a real impact in protecting shareholder investment and overall firm performance,” said co-author Kai Li.
The researchers analyzed a large number of acquisition bids from S&P 1500 companies between 1997 and 2009. They then looked at the bid premium, or the difference between a final offer price per stock share and the price of the stock before the deal. Each woman added to a board reduces the price of a successful acquisition by 15.4 percent and lowers the chance that the company will make a buy at all by 7.6 percent, the study found. The authors say this suggests that women have less interest in risky deals and are more focused on a higher return on investment. “Our findings show that the prudence exhibited by women directors in negotiating mergers and acquisitions has had a substantial positive effect on maintaining firm value,” Li said. “This finding adds fire and force to recent calls to mandate a minimum number of women on the boards of publicly traded companies.”
Indeed, it is one more data point in a growing body of evidence that gender equity on company boards isn’t just about fairness but also about good business sense. One study found that companies with women on their boards saw their stock prices outperform those that didn’t. Another found that those with women on their boards on a particular index outperformed those without by 26 percent over six years. Israeli companies with at least three female board directors at meetings have been found to have significantly better returns that those with only men. A survey of 600 board directors found that women’s decisions lead to better company performance.
Yet women are far from reaching equal representation on most company boards. Some countries have decided to prod progress along. Norway was the first, enacting a quota of 40 percent women on boards, and women now hold 35 percent of board positions on the country’s boards. Belgium, France, Italy, the Netherlands, and Spain have since followed suit. Germany will soon join them with a requirement that boards be 30 percent female by 2016. European Union Justice Commissioner Viviane Reding has proposed a 40 percent quota for the whole EU region. That law has been approved by two European Parliament Committees and will be considered by the Parliament next year. For its part, the United Kingdom doesn’t have a requirement but has published a 25 percent recommended target by 2015 along with other reporting requirements on diversity. The number of women on the boards of large companies listed on the London stock exchange is now at an all-time high.
In the United States, by contrast, all measures are completely voluntary. Most companies flaunt the few basic rules that the Securities and Exchange Commission has instituted for companies to simply report on how they consider gender diversity. Progress has also been very slow here. Women hold less than 17 percent of board seats on Fortune 500 companies, a level that has stayed flat for seven years. Fifty of those companies don’t have any women on their boards at all.