The tipping point: Women on boards and financial performance

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    A growing body of research shows that having three women on a corporate board represents a “tipping point” in terms of influence, which is reflected in financial performance. Our analysis from last year looked at a snapshot of global companies in 2015 with strong female leadership, finding that they enjoyed a Return on Equity of 10.1% per year versus 7.4% for those without such leadership (Lee et al., 2015), though a causal link was not established.

    This year, we analyzed U.S. companies over a five-year period (2011-2016). U.S. companies that began the period with at least three women on the board experienced median gains in Return on Equity (ROE) of 10 percentage points and Earnings Per Share of 37%. In contrast, companies that began the period with no female directors experienced median changes of -1 percentage point in ROE and -8% in EPS over the study period. As with the previous study, a causal link was not established.1

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    Such superior performance from companies with at least three female board members may derive from better decision-making by a more diverse group of directors, as some studies hypothesize. But outperformance may also be tied to greater gender diversity among senior leadership and the rest of the workforce, which historically has correlated with reduced turnover and higher employee engagement.

    Globally, we found that large multinational companies with three or more women directors had nearly twice the average percentage of women among their senior leadership as companies with no female directors; such companies were four times as likely to have a female CEO as firms with fewer than three women directors. In Japan, which has imposed new gender diversity reporting requirements, having even a single female director corresponded to a higher percentage of women among middle and senior management, new hires and the workforce at large.

    The entire report can be accessed here: THE TIPPING POINT: WOMEN ON BOARDS AND FINANCIAL PERFORMANCE

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