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Research on the Benefits of Diversity – Enhanced Performance

Numerous studies have found strong correlations between the number or proportion of women on Boards and financial performance. It has been hard to demonstrate a clear, causal link, but the weight of evidence strongly suggests there is such a link. Such microeconomic benefit aggregates to macroeconomic benefit.

The Lord Davies of Abersoch CBE in in his 2011 Report and Recommendations, Women on Boards, reiterated the significance of gender diversity for corporate performance:

"The business case for increasing the number of women on corporate boards is clear. Evidence suggests that companies with a strong female representation at board and top management level perform better than those without and that gender-diverse boards have a positive impact on performance. It is clear that boards make better decisions where a range of voices, drawing on different life experiences, can be heard. That mix of voices must include women."

The Lord Davies of Abersoch CBE

An important study in this field was published by Credit Suisse in 2012, compiling and analysing data for 2360 companies on the Morgan Stanley Capital International All Country world index on how many women were on each company Board and relating to each company’s performance.

An article in the New York Law Journal by David Katz and Laura McIntsosh summarised well the key findings. In summary, between December 2005 and December 2011, for large-cap companies, those with women directors outperformed those with no women directors by 26%. For small- to midcap companies, those with women on the Board outperformed those with all-male Boards by 17% in the same period. Companies with one or more female Board member experienced overall higher returns on equity, lower leverage and better growth.

Although other studies present more mixed findings, the Credit Suisse report identifies seven factors that may contribute to a link between the presence of women directors and company performance:

the appointment of women directors may be an indication that a company is already fundamentally sound and looking to improve from a position of strength
greater diversity on a team can enhance the performance of both the majority and minority groups, improving average outcomes overall
gender diversity can improve the overall level of leadership skills, as some studies suggest that women in general have stronger skills than men in defining responsibilities clearly and mentoring and coaching employees
deliberately expanding director candidate searches to include women provides access to a significantly wider pool of available talent
a gender-mixed Board may have a better understanding of the consumer preferences of households, particularly in sectors where women make many of the spending decisions
academic research has demonstrated that having women on a corporate Board improves performance on corporate and social governance metrics for companies with weak governance
women have been shown to be generally more risk-averse than men, which may explain in part why companies with women directors in the Credit Suisse study had lower debt levels than their peers, an important determinant of good performance during the current financial crisis.

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