The Value of Diverse Boards

Posted by: Jena McGregor on October 1, 2007

File this under obvious but important (a nod to “The Week” and my favorite “boring but important” column of news): Fortune 500 companies with the highest representation of women directors attained significantly higher financial performance, on average, than those with the lowest. This according to the nonprofit group Catalyst, which released a study today on the topic. On average, they report, companies with three or more women board directors perform “notably stronger-than-average.”

This won’t come as a surprise, considering that better diversity has long been linked with better financial performance. Companies with more diverse boards, executive teams, and employees are inevitably going to create more diverse product lines and weigh problems with more varied input.

What is surprising is the rate at which women-heavy boards outperformed their mostly male counterparts on the study’s three metrics: return on equity, return on sales and return on invested capital. According to Catalyst, the comparisons are significant. On average, companies with the highest percentages of women directors outperformed those with the least by:

Return on Equity: 53 percent
Return on Sales: 42 percent
Return on Invested Capital: 66 percent

Reader Comments

Mark Amtower

October 10, 2007 3:48 PM

In the government market, it seems Boards are often comprised from the same aging gene pool of rapidly aging white guys. There are about 2o guys who seem to show up on nemrous Boards. I made this statement in a Boardroom once, and they thought I was joking.

In the government market, as elsewhere, the lack of diversity is going to cause a stagnation of ideas - until the age of government employees is such that there are more YouTubers than "60 Minutes" folks. When this occurs, the vulnerability of the companies with non-diverse Boards will not only become apparent, it will cause a sea-change in the small-to-mid size companies that do business with the government and we will see the few companies with diverse (and younger) Boards emerge with more business.

Borads with more women, more minorities and more ethnicity will lead to more marketshare.

Post a comment

 

About

How can you manage smarter? Bloomberg Businessweek contributors synthesize insights from the brightest business thinkers, critique the latest management trends, and comment on leaders in the news.

BW Mall - Sponsored Links

Buy a link now!