Wednesday, October 3, 2007

Having Women on Boards of Directors Makes Companies More Profitable has a fabulous article about how companies that have more women on their boards of directors are actually more profitable. Apparently, having a diversity of voices around the table is actually beneficial in improving the performance of the company. Women are still a minority though on boards, holding only 14.6% of board positions of Fortune 500 companies. Perhaps studies like these will help these companies increase their diversity? Once can only hope.

Having women well represented in the corporate boardroom can help improve financial performance, according to a new study by a group that promotes women in executive roles.

Catalyst, a non-profit organization focused on women in the workplace, released a report today showing that big companies with the greatest number of female board members on average have significantly better financial performance than those with fewer women.

The report looked at financial results, such as return on equity, at the 500 largest U.S. corporations. Those with at least three female directors had notably stronger financial performance, on average, the study found.

The results suggest that "diversity, well managed, produces better results" for companies, said Catalyst President Ilene Lang.

"Bringing women on their boards to represent the stakeholders really gives them a better company and better performance," Lang said. The correlation was found throughout an array of industries, she said.

The study looked at three financial measures -- return on equity, return on sales and return on invested capital -- at companies in the Fortune 500 over the 2001-to-2004 period.

Those years were chosen because they were part of a financial recovery period after significant stock-market turmoil.

In return on equity, on average, companies with the highest percentages of female board members outperformed those with the least by 53%, the study found.

In return on sales, the companies with more female board directors outperformed by 42% on average and in return on invested capital, by 66%, Catalyst said.

The group said it chose these three benchmarks, rather than things such as earnings or stock-price movement, to try to best track how a company performed financially.

Because of movement in and out of the Fortune 500, there were 520 companies in the analysis. Several academic experts worked with Catalyst researchers to compile the report.

Females are still a small minority in the boardroom, holding 14.6% of Fortune 500 board seats in 2006, down slightly from 14.7% in 2005, according to earlier research from Catalyst.

If the pace continues, it would take about 73 years for females to be equally represented on boards, the group projects.

Myrtle Potter, a director at (AMZN.O) and FoxHollow Technologies (FOXH.O) who was not involved in the preparation of the new study but reviewed the results, said the data showed women board members can have a major impact.

"I have believed all along that having different voices around the table makes a difference," she said. "It just goes to show that there is still a need for greater diversity on boards at publicly traded companies."

No comments: