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Meggin Thwing Eastman

Meggin Thwing Eastman

Research Editorial Director

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Women on Boards: One Piece of a Bigger Puzzle

Previously, we have asked whether the number of women on boards has a relationship to corporate financial performance. Research suggests that it has. But is that the whole story? Does the number of women on boards reflect companies’ overall approach to managing human capital and their financial performance?

In its Sustainable Development Goals for 2030, the United Nations set out a vision of a world that includes economic growth, increases in productivity and the eradication of gender discrimination so that women have “full and effective participation and equal opportunities for leadership at all levels.” Our latest research suggests the connection between these goals is relevant to investors.

Companies failing to employ women – at any level – in numbers proportional to their availability are by definition limiting the size of their talent pool. In contrast, higher numbers of women, especially in senior positions, might indicate a savvier approach to talent – one that just might promote productivity and economic growth along with gender equality.

We looked at talent management practices and female board representation across 617 MSCI ACWI Index companies in the consumer discretionary, consumer staples and industrials sectors and the banking industry.1 We identified a set of Talent Leaders (those with strong talent management practices, including things like regular engagement surveys, leadership training and support for continuing education) and Talent Laggards (those with no evidence of any such practices). Talent Leaders were far more likely than Talent Laggards to have a critical mass of female directors (at least three for three years in a row, 2014-2016), while Talent Laggards were much more likely to have few or no women on the board. That is to say, companies investing in their workforce were probably also promoting women at high levels, and vice versa.

Further supporting the idea that the presence or absence of women on a board reflected a company’s overall approach to talent – board members being crucial talent assets – we found that Talent Leaders with that persistent critical mass of female directors had the highest growth in employee productivity in their industry compared to any other group we analyzed. Conversely, the Talent Laggards with few or no women on their boards trailed all other groups.

Firms with more women on boards and stronger human capital policies showed higher productivity growth

The chart shows average growth of employee productivity (measured as compound annual growth rate of revenue per employee for 2012-2016) relative to sub-industry median for each of the groups.The 3+ WOB group is comprised of companies that had at least three female directors each year from 2014-2016. The 1- WOB group is comprised of companies that had one or zero female directors each year for the same period. We have not included 1- WOB Talent Leaders or 3+ WOB Talent Laggards in the chart because the sample sizes were too small for meaningful analysis.

In fact, among Talent Laggards, the fewer women were on the board, the more their employee productivity growth lagged.

Talent Laggards with fewer women on boards showed negative productivity rates

Source: MSCI ESG Research, Thomson Reuters

The chart shows average growth of employee productivity (measured as compound annual growth rate of revenue per employee for 2012-2016) relative to sub-industry median for Talent Laggards by number of women on the board.

An absence of women on a company’s board of directors might serve as a warning sign for investors concerned about talent management and workforce development. Companies falling short in both areas might merit a closer look.

The author thanks Panos Seretis for his contribution to this post.

1 We focused on these four areas because they had sufficient women on boards for meaningful analysis.

Further reading:

Women on Boards & the Human Capital Connection

Women on Boards Progress Report 2017

Empowering women in the workplace

The tipping point: Women on boards and financial performance

Has gender pay parity arrived in the executive suite?