Having More Women On Boards Sparks Even More Diversity

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Having more women on boards sparks more turnover to bring in new perspectives and even fuels increases diversity, according to a new report from Ernst & Young.

Stagnation in turnover and lengthy tenures for current board members can worry investors, as it means “board independence may be compromised, group-think may be stifling boardroom debate, and fresh perspectives and insights may be lacking from strategic discussions,” the report notes. Adding more women can help combat this inertia. “Gender diversity accelerates board renewal and diversification,” it states. Companies with women on their boards are more likely than those without gender diversity to have added new board directors: Less than 60 percent of all-male boards have added a new director in the past three years, while more than 80 percent of those with at least on women have. Nearly 95 percent of companies with a woman on their board have added a new director over the past five years, compared to 77 percent of male-only ones.

Gender diversity also appears to beget more gender diversity. The portion of companies with two or more women on the board of directors has increased over the past seven years, while the number of all-male boards has dropped and the share with one female director has stayed constant. “This suggests that boards that have experienced diversity recognize the value it brings to board decision-making and performance,” the report notes, and “they continue to add more women to the board.” Gender diversity on boards also has impacts elsewhere: companies that have more women in leadership have more women in executive positions.

The report also finds that more turnover and diversity may be on its way. Twenty percent of the board seats at S&P 1500 companies are held by those who are around age 72, a common age for retirement. Ernst & Young estimates that about 27 percent of board seats could change hands in the next five years. This could be a big opportunity to bring in more women: men account for 94 percent of the seats held by people age 68 and over.

But women still have a lot of ground to make up. They hold just 15 percent of board seats, “less than the proportion of seats held by directors named John, Robert, William and James,” the report notes. Some industries are worse than others: about 40 percent of oil and gas companies don’t have any female board directors. American companies haven’t made any significant progress in increasing gender diversity in eight years. Fifty of the largest 500 don’t have any women on their boards at all.

Yet the finding that gender diversity helps boost turnover isn’t the only piece of evidence that more women on boards brings better results. Having more women on a board is correlated with that company paying less for an acquisition and making fewer of them, which protects shareholder value and firm performance. Three separate studies have found that boards with gender diversity significantly outperform those that don’t in stock price, returns, and performance. Women’s decisions have been found to lead to better company performance overall.

The United States mostly leaves increasing gender diversity to voluntary efforts, and most companies flout the few basic rules on disclosing information about diversity. Other countries, meanwhile, have either instituted more aggressive targets or actual requirements. The United Kingdom set a goal of 25 percent female board directors by 2015, and Belgium, France, Germany, Italy, the Netherlands, and Norway all have gender quotas. The European Union as a whole may soon have one as well.