Tag Archives: Board of directors

Women Board Members + Strong Shareholder Protections = Higher Financial Performance

Kris Byron

Kris Byron

The relationship between women on corporate Boards of Directors and company positive financial results is mixed, according to Syracuse University’s Kris Byron and Corinne Post of Lehigh University.

Corinne Post

Corinne Post

To clarify conflicting data, they conducted a meta-analysis of 140 existing studies and found that women on corporate boards was related to positive financial outcomes in countries with stronger shareholder protections.

Companies with women on Boards and subject to rigorous shareholder protections reported higher accounting returns or firm profitability.

Richard Gentry

Richard Gentry

Accounting returns evaluate a firm’s efficiency in using assets to generate earnings and represent short-term financial performance, noted University of Mississippi’s Richard Gentry and Wei Shen of Arizona State University.

Wei Shen

Wei Shen

Another financial performance measure in Byron and Post’s meta-analysis was market performance, defined by University of Chicago’s Richard H. Thaler as marketplace behavior that reflects expectations of a firm’s long-term value.

Richard Thaler

Richard Thaler

Women on Boards of Directors provide “diversity of thought and experience” and tolerate less financial risk.
As a result, female board members made stronger efforts to monitor the firms and to ensure strategy execution, according to Byron and Post.

Kathleen Eisenhardt

Kathleen Eisenhardt

The team considered Agency Theory, proposed by Stanford’s Kathleen Eisenhardt, in her theory that Boards of Directors are “information systems” used by key stakeholders to verify organizational behavior.

Amy Hillman

Amy Hillman

These systems are influenced by Directors’ individual cognitive frames, derived from their diverse values and experiences, argued Arizona State’s Amy Hillman and Thomas Dalziel of University of Cincinnati.

Donald Hambrick

Donald Hambrick

These diverse cognitive frames yield more favorable organizational outcomes only when teams “engage in mutual and collective interaction [and] share information, resources, and decisions,” according to Upper Echelons Theory (UET) developed by Penn State’s Donald Hambrick.
This means that women Board members affect group decision-making and financial performance when other Board members are willing to consider their diverse perspectives and experiences.

Thomas Dalziel

Thomas Dalziel

Strong shareholder protections provide “an information-processing stimulus that motivates (Boards) to leverage the decision-making resources (i.e., knowledge, experience and values) that women bring,” asserted Byron and Post.
From this, they concluded that strong financial outcomes occur in companies with women on their Boards of Directors in countries with strong shareholder protections.

Byron and Post’s analysis illustrates that diverse perspectives provide little benefit if they are not solicited and fully considered in a context of regulatory oversight.

-*When have you observed diverse perspectives associated with increased profitability and performance?

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Gender Differences and Diversity in Corporate Interaction Styles, Financial Outcomes

Gender makes a difference in interaction styles on corporate boards, and the ratio of women to men on these boards is linked to corporate financial performance.

Interaction Styles

Gregory McQueen

Gregory McQueen

Chris Bart

Chris Bart

McMaster University’s Chris Bart and Gregory McQueen of Western University of Health Sciences surveyed 600 board directors (75% male) and found that men tended to base corporate decisions on tradition, rules, and regulations, whereas women tended to ask questions to develop more solution options, cooperate, and consider the interests of all stakeholders.

Nanette Fondas

Nanette Fondas

Nanette Fondas, then of Duke University, and Susan Sassalos, now of Edison International found that women on corporate boards influence other board members to act more “civilized” and “sensitive to other perspectives.”

Val Singh

Val Singh

In the same vein, Cranfield University’s Val Singh reported that women on corporate boards also reduce ‘game playing’ among board members.

Siri Terjesen

Siri Terjesen

With Siri Terjesen of Indiana University and Cranfield University’s Ruth Sealy, Singh evaluated existing research on corporate board gender diversity to develop a model of analysis by:Val Singh - Gender Diversity on Corporate Boards Model

  • Individual
  • Board
  • Firm
  • Industry and Environment

Financial Performance:

Nancy Carter

Nancy Carter

Catalyst’s Nancy Carter and Lois Joy with Harvey Wagner of University of North Carolina and Michigan State University’s Sriram Narayanan found that Fortune 500 boards with 3 or more women report:

Harvey Wagner

Harvey Wagner

compared to boards with more men.

Nick Wilson

Nick Wilson

Nick Wilson and Ali Altanlar of Leeds University added another financial indicator affected by gender ratios on boards.

Ali Altanlar

Ali Altanlar

In their analysis of 17,000 UK companies that went insolvent in 2008, Wilson and Altanlar reported even one female board director reduces bankruptcy risk by 20%.

Pepperdine University’s Roy D. Adler studied 200 companies among the Fortune 500 to mine data from 1980 through 2001 and reported results consistent with the Catalyst investigation.

Roy Adler

Roy Adler

Adler and team identified the firms that had a record of promoting women to high levels and compared their profit performance to the median performance of Fortune 500 firms in the same industries.

The researchers separately compared profits as a percentage of sales, of revenues and of assets and found that for 2001, the 25 firms with the strongest record of promoting women to high organizational levels outperformed the industry medians with:

  • 34 percent higher revenue
  • 18 percent higher assets
  • 69 percent higher equity.

The 10 firms with the very best records of promoting women showed greater profits than competitors, and results were confirmed in subsequent studies in 2004 through 2008.
Adler and team noted that the odds of all 18 financial measures favoring women are 262,114 to 1, suggesting that these findings were not random errors.

Cristian Dezso

Cristian Dezso

Likewise, University of Maryland’s Cristian Dezső and David Ross of Columbia University found that companies with one or more women in top management  close to CXO level perform better than other companies, based on their assessment of the largest 1,500 public US companies from 1992 to 2006.

Sheryl Sandberg

Sheryl Sandberg

Sheryl Sandberg isn’t the only one to ask “Why so few?” in corporate and government leadership roles, particularly when these results consistently point to the financial benefits of more women in top decision-making roles.

AAUW

AAUW

American Association of University Women asked the same question about women in Science, Technology, Engineering, and Mathematics roles, and concluded that there remains a large gap in equal gender representation in leadership roles and in technical careers – and this discrepancy comes at the price of financial performance and organizational climate.

  • Where have you observed work group interaction differences depending on the ratio of women?
  • What financial impacts have you observed for organizations with women in top leadership roles?
    Level of Analysis Model

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Large-Cap Companies with Women Board Members Outperformed Peers

Credit Suisse Research Institute analyzed the performance of close to 2,400 companies with and without women board members from 2005 onward, and evaluated four key financial metrics:

1. Higher return on equity (ROE): The average ROE of companies with at least one woman on the board over the past six years is 16 percent; four percentage points higher than the average ROE of companies with no female board representation (12 percent).

2. Lower net debt to equity ratio: Net debt to equity of companies with no women on the board averaged 50 percent over the past six years; those with one or more have a marginally lower average, at 48 percent.

3. Higher price/book value (P/BV) multiples: In line with higher average ROEs, aggregate P/BV for companies with women on the board (2.4x) is on average a third higher than the ratio for those with no women on the board (1.8x).

4. Better average growth: Net income growth for companies with women on the board averaged 14 percent over the past six years compared to 10 percent for those with no female board representation.

The report offered seven hypotheses to explain the performance findings, including:

Improved Corporate Governance: Academic research reveals that a greater number of women on the board improves performance on corporate and social governance metrics.

Risk Aversion: The study analyzed the MSCI AC World constituents and found that stocks of companies with women on the board are more likely to have lower levels of gearing than their peer group where there are no women on the board.

Lower relative debt levels have been a useful determinant of equity market out-performance, delivering average out-performance of 2.5 percent per year over the last 20 years and 6.5 percent per year over the last four years.

Gender Diversity and Corporate Performance report

-*What financial results have you observed among large organizations with women board members?

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