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What happens when you have 3 or more women on a company board

By
Maria LaMagna, Marketwatch
Published March 8, 2018
Updated March 8, 2018, 11:34 a.m. ET

What’s the key to making your company more productive? One firm says it has found the magic recipe.

Having three or more women on a company’s board of directors helps companies perform better financially, the financial planning firm MSCI said in a paper this week. After analyzing a body of research on the subject, MSCI said a more diverse workforce and board of directors leads to a greater diversity of ideas, MSCI said.

But companies with three or more women on their boards, who also use leading talent management practices, saw even more financial benefits, including higher average dividend payout ratios and return on equity figures.

“Talent management” refers to any practices or policies a company has that helps to attract, retain and develop its workforce, a company spokeswoman said.

MSCI researched more than 600 large- and mid-sized companies in the industries of consumer discretionary and staple goods, industrials sectors and banking, in 23 “developed” markets to test the hypothesis that simply hiring more women on corporate boards isn’t enough. (Those developed markets include Canada, the US, 16 European countries including Sweden and the UK and five countries in the Pacific including Singapore and New Zealand.)

In addition to having three or more female directors over the course of three years, these companies with three or more women on the board saw a growth in employee productivity that was 1.2 percentage points above the medians in their industries. In contrast, those with mostly male boards and “lagging” talent management practices saw growth in employee productivity 1.2 percentage points below industry medians.

However, some companies have a long way to go before reaching these goals. Women in 2017 made up just 16 percent of board seats in 3,000 of major US companies tracked in the “Russell 3000” index, according to the company Equilar, which tracks the progress of women leaders. That was up slightly from 15 percent the year before.

There appears to be resistance, at best, or bias, at worst, against women holding these roles. Some 53 percent of public company directors who responded to a PricewaterhouseCoopers survey in 2016 said they believe women should hold 40 percent of board seats, or less. Some 10 percent of board directors who answered the survey — 97 percent of whom were men — said if a board wants to operate at its maximum potential, no more than one in five board members should be a woman.

But in other ways, there has been some progress. The number of women becoming CEOs, for example, is increasing. Of 1,043 CEOs that were replaced in 2016, 193 (18.5 percent) were replaced by women. In 2010, that number was 12.3 percent, according to the consultancy firm Challenger, Gray & Christmas. Both numbers, however, are notably low.