Economy

Companies With More Women In Leadership Get Blockbuster Results

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Companies that have more women on their boards and in their senior management teams aren’t just opening doors to gender equality. They’re reaping greater financial rewards.

Each year since 2005, companies around the world that have more than one women on their boards have seen a 3.3 percent bigger stock market return than those without any women, according to a new report from Credit Suisse.

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CREDIT: Credit Suisse

The bank also compared companies with an above average number of women on their boards to those that are below average and found the former outpaced the latter by 3.7 percent in the same timeframe.

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CREDIT: Credit Suisse

Other metrics show the same result. Companies with at least one female board member had a return on equity of 14.1 percent over the past nine years, greater than the 11.2 percent for those without any women. The stock valuations are also higher for gender diverse boards versus all-male ones.

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CREDIT: Credit Suisse

Companies that have focused on increasing gender diversity also see better results than those who let women’s representation slip or fall, a trend that is statistically significant and consistent year after year.

These trends also held true when Credit Suisse looked at how many women companies had in senior management roles. Those whose senior teams are more than 15 percent female had a return on equity of 14.7 percent last year, compared to 9.7 percent where teams were less than 10 percent female. And the higher the share of women in leadership, the greater the returns.

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CREDIT: Credit Suisse

The report notes, though, that women executives are more heavily concentrated in less powerful positions. Yet when more women are in CEO and other high-level positions, the return on equity effect is even higher. There isn’t a large enough pool of female CEOs to draw statistically significant conclusions, but the authors still found that the return on equity and stock valuation is higher for companies with women at the helm. “Either female CEOs make companies better or better companies hire female CEOs; or both,” it notes.

The causation versus correlation isn’t clear in the rest of the report, either. “While our statistical findings suggest that diversity does coincide with better corporate financial performance and higher stock market valuations, we acknowledge that we are not able to answer the causality question,” it notes. “Do better companies hire more women, do women choose to work for more successful companies, or do women themselves help improve companies’ performance? The most likely answer is a combination of the three.”

The returns may be high, but the number of women in leadership is not. While gender diversity on boards increased in almost every country and is higher than the 9.6 percent level in 2010, it’s still just 12.7 percent now. Women make up 12.9 percent of top management.

The United States doesn’t look all that much better. Women make up just 5 percent of CEOs at Fortune 500 companies, less than 15 percent of executive officers, and less than 17 percent of board members. Other developed countries have made a lot more progress, particularly those that have instituted gender quotas. But here we have one rule about corporate diversity that’s so vaguely written as to be nearly meaningless for increasing the number of women in leadership.

American companies may be missing out on financial performance, however. Credit Suisse’s latest report fits into a wide body of research that finds that increasing gender diversity in leadership is a big bonus for the bottom line.