For higher profits, add women at the top

Gender diversity can do wonders for corporate returns.

Companies with women on their board have outperformed those with only men by 3.5 percent on a compound annual basis since 2005, according to a new study from Credit Suisse. On top of that, companies where women hold the majority of top leadership roles show better sales growth, high cash flow returns on investment and less leverage, according to the report, which looked at 27,000 senior managers at 3,000 of the world’s largest companies.

While gender diversity appears to help companies outperform those that are mostly -- or all -- male at the top, it’s not a strategy that’s yet widely accepted within management. Boards are witnessing some improvement when it comes to including more women, yet executive diversity hasn’t shown the same progress, the report noted. One reason: Women who are most likely to hold top management roles may already be scooped up by boards.

“We find a growing disparity between boardroom and executive diversity and identify several related challenges,” wrote Urs Rohner, chair of the board of directors for Credit Suisse, and Iris Bohnet, a Harvard professor and Credit Suisse board member, in the report. “For example, whereas the female
‘overboarding’ seen in the U.S. and European boardrooms enabled rapid achievement of diversity targets, it also tends to reduce the pool of women available for senior management roles.”

The findings back up research from the Peterson Institute for International Economics, which studied 22,000 companies across 91 countries. It found that organizations with more women in leadership roles are more profitable. Firms where at least 30 percent of “C-suite” executives are women added 1 percentage point to their net margin.

Credit Suisse noted similar benefits.

“As female participation increased in senior management, so did performance, providing more quantitative evidence of the enhanced decision-making and governance that diversity enables within an organization,” the bank’s report said.

The number of women sitting on corporate boards has improved by 16 percent since Credit Suisse last looked at the issue two years ago and 54 percent since 2000. Yet most of those improvements occurred in Europe, where quotas and targets have helped promote gender diversity. Women account for about 24.4 percent of European boards, compared with 14.7 percent globally.

Diversity has improved in North America, increasing by about one-third, due to shareholder pressure, public debate and advocacy groups.

“While we believe quotas fail to address more fundamental pipeline issues outside the boardroom, we recognize that the spillover effect of the debate around quotas in Europe has had probably a beneficial impact on boardrooms globally,” the report said.

Still, the U.S. is in the middle of the pack when it comes to boardroom diversity. Women make up only 16.6 percent of American corporate boards, less than in Israel, Australia, South Africa and a dozen other countries. 

What nation has the most equal representation in the boardroom? Norway, where women make up 46.7 percent of corporate boards.