Financial Results Improve with Women in Leadership

A series of recent studies has shown that organizations that have more women in management and on boards, on average, attain better financial results than do other organizations. For example, according to a recent Catalyst Information Center report, Why Diversity Matters, a 2011 study found that “companies with the most women board directors out- performed those with the least on return on sales (ROS) by 16 percent and return on invested capital (ROIC) by 26 percent.”

In 2012, Bloomberg published a large study (2,360 companies) conducted by the Credit Suisse Research Institute, which found that “companies with a market capitalization of more than $10 billion and with women board members outperformed comparable businesses with all-male boards by 26 percent worldwide.” A number of other recent studies have also found that companies of various sizes with “more women directors actually rank higher on various performance measures than other boards” and that there are “positive correlations between gender diversity on boards and improvements in corporate governance and financial performance.”

Other financial performance indicators have also been studied. First, the New York Law Journal reported that companies with at least one female director “averaged higher net income growth, lower net debt-to-equity ratio, and faster reduction in debt compared to companies with no female directors.” Second, a U.K. study found clear evidence that companies with women directors had a lower risk of insolvency than did other companies. Third, a recent Canadian study found that having women on corporate boards helps companies strike better business deals.

The study “shows companies with female directors bring down costs of acquiring other firms, [and] make less risky bids.” Women directors can help their companies make fewer errors that financially hurt their stakeholders. The researchers claim that women tend to be less overconfident than men, especially in times of uncertainty. Another scholar stated that “women appear to be less motivated by empire- building” and are “less likely to take on an acquisition unless they feel very sure that it’ll be good for shareholders.” Finally, Why Diversity Matters cited studies that showed the following benefits: higher operating results, better stock growth, better economic growth, higher market-to-book value, better corporate governance and oversight, improved corporate sustainability, and overall increased profitability.

Overall, data from a host of national and international studies have shown a trend that companies with females in leadership teams and on executive boards have experienced better financial performance. Most of the research has been conducted within the business arena, but research shows that these and/or related benefits can also extend to other sectors. However, it is important to note that some of the cited studies found that in order to obtain some of the above-listed financial performance benefits, a critical mass of women (about 30%) on boards or leadership teams must be present.

Source: Utah Women and Leadership Project, Research Brief No. 5, January 2015.

Photo credit: Salt Lake Tribune – Lori Chillingworth is an executive at Zions Bank and chairwoman of the Women’s Leadership Institute board.

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