Board Composition and the Role of Gender Diversity
A number of studies show that companies with more women involved in leadership positions tend to outperform their sector in terms of return on equity, operating result, and stock price growth. For example, a McKinsey study found that businesses with a greater proportion of women on their boards outperformed rivals in terms of returns on invested capital, returns on equity and sales. Similarly, a study from the University of Leeds found that having at least one female board member reduced that business’s chances of folding by 20 per cent, and having more than one reduced the odds even further. The McKinsey study also showed that companies with three or more women in top management functions score more highly for each organisational criterion than companies with no women at the top, through a survey. This shows that having one woman may not be enough to influence a board. Another survey showed that women perceive they receive more information when there are more women on the board.
A diverse board may signal independence, creative thought, opportunities for break-out strategies and an open-mindedness on the part of the company—traits that are increasingly important as external factors such as globalisation and heightened competitiveness impact the marketplace. Having women in key positions may add value through women’s distinctive set of skills, and creating cultures of inclusion through a diverse workforce. Furthermore, boardroom diversity may aid in avoidance of ‘groupthink,’ a complacency that may lead to the failure of the board to serve its monitoring role in corporate governance.
This paper will review studies analysing the role of gender diversity in corporate leadership and will offer suggestions for increasing the ranks of women in leadership positions.