Gender diversity: does it matter?

Gender representation in the board of directors looks at the proportion of men and women who occupy a place in the board. Globally men occupy more seats than women. This is being adressed by governments all over the world, trying to get an equilibrium between men and women in the board.  

In 2011 the quota for women in the board was implemented in the Belgium law. By 2017, at least one third of the board of directors of stock quoted companies should be women. The European Comission even raised these quota and by 2020 40 % of the board of directors of European publicly listed companies should be women. It is not a rigid quantitative quota obligation but a procedural quota. This in order to break the glass ceiling and have a better gender balance in the board. 

Looking at the graph below, comparing the percentages of female directors in the board of S &P 500 company boards by industry, we see a clear rise in all industries between 2010 and 2014. But it is obvious that the numbers are still far from the 40 % that the European Commission wants.

Some critiques wonder why it is necessary to implement quotas and if the companies will benefit from this. “Is it needed that we oblige companies to have more women in their boards?” Various research papers prove that the quota on female directors raise the quality of the board and their decisions, as well as the performance of the companies in a whole.

A recent report by Catalyst points out that the Fortune 500 companies with the highest representation of women on the board of directors attained significantly higher performance than those with the lowest representation of women. This proves that gender diversification at the board of directors has some positive effects. The study looks at three critical financial measures: return on equity, return on sales and return of invested capital. They compared those ratios for companies with the highest level of women on the board and companies with the lowest representation. 

This figure shows the result of their research. For all three ratios, companies with more women board directors (WBD) outperform the companies with the lowest representation of women. The return on equity is 53 % higher for companies with more women on the board. Looking at the return on sales, the companies with a higher diversification outperform with 42 %, and by 66 % for the return on invested capital. The correlation between company performance and gender diversification can also be seen across industries. 

Possible explanations of better performance of companies with more diversification on the board is that women are less ‘risk-takers’ and that they provide a better flow of information. Women will be more careful for reputational damage and they improve the corporate governance structure of companies overall.