Higher Returns with Women in Decision-Making Positions
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Higher Returns with Women in Decision-Making Positions

Research report reaffirms leadership link between gender diversity and better results, debunks myths.

Companies with more female executives in decision-making positions continue to generate stronger market returns and superior profits, and contrary to conventional wisdom, women in leadership roles do not actively exclude other women from promotions to top management, according to a recently released report from the Credit Suisse Research Institute.

Entitled "CS Gender 3000: Progress in the Boardroom," the bi-annual report reaffirms prior findings linking gender-related diversity to better performance, while debunking the so-called Queen Bee" myth with new evidence showing that women CEOs are much more likely to surround themselves with other women in senior roles. It also challenges the "Glass Cliff" phenomenon which suggests that women are only appointed to lead companies as a last resort and are set up to fail. In addition, the report offers new insights into gender diversity in the venture capital (VC) and microfinance sectors.

"A key message from our 2014 study "The Credit Suisse Gender 3000: Women in Senior Management" was that gender diversity or the greater representation of women in senior roles was not just 'nice to have' but linked to excess stock market returns and superior corporate profitability," the report states. "As we re-run our dataset for 2016, we find those investors focusing on those companies where gender diversity is an important factor in their strategy continue to be rewarded with excess returns running at a CAGR of 3.5 percent. 

"Meanwhile, progress toward greater diversity in boardrooms is being achieved with a 16 percent increase in female representation since our last survey. However, the starting point is a low one and the pattern of improvement uneven. Substantial female representation is still a mark of differentiation rather than the norm."

The top five countries with the highest percentage of women represented on corporate boards are all European:

47

Norway

34

France

34

Sweden

31

Italy

31

Finland

For Switzerland, a separate study was released today. It shows that although the proportion of women on the board of directors of Swiss companies has risen by 55 percent over the past eight years, it is still low compared to other countries. In terms of representation of women in senior management, Switzerland also has much catching up to do: it is barely at half the global average.

First released in 2014, the report encompasses 27,000 senior managers at over 3,000 companies covered by Credit Suisse analysts, and may well be the largest of its kind. It examines whether the evidence continues to link gender diversity to better performance and looks specifically at firms with more than 50 percent female representation in senior management, microfinance institutions and venture capital firms.

The report's analysis continues to demonstrate that the higher the percentage of women in top management, the greater the excess returns for shareholders. Financial performance metrics verify this superior stock market performance. From YE13 through mid-16, companies where women accounted for 25 percent of senior leadership outperformed at a compound annual growth rate of 2.8 percent; this increased to 4.7 percent at companies where women comprised 33 percent of senior leadership; and then jumped to 10.3 percent at companies where more than 50 percent of senior leaders are women compared with a 1 percent annual decline for MSCI ACWI index over the same period.

The report also finds that the market is willing to pay a 19 percent premium price-to-book multiple for the top 50 percent of companies with female CEOs. These companies show returns on equity (ROE) that are 19 percent higher on average and provide a 9 percent higher dividend payout.

Debunking the "Queen Bee" Myth

One of the report's key focus areas centers on the much debated notion of a "Queen Bee" syndrome which argues that women in senior positions actively exclude other women from promotions into top management. The report's findings dispute this and show that female CEOs are much more likely to surround themselves with other women in senior roles. In fact, female CEOs are 50 percent more likely than male CEOs to have a female CFO, and 55 percent more likely to have women running business units.

The findings also reject the presence of the "Queen Bee" syndrome in the microfinance and venture capital sectors. In fact, 25-30 percent of microfinance CEOs are women and about 50 percent of the lending officers are women. However, female representation in partner positions in VCs remains very low. VCs founded by women have a much higher percentage of female partners than the industry average (43 percent vs. 7-8 percent).

Challenging the "Glass Cliff"

The report also challenges the validity of the "glass cliff" phenomenon for women CEOs. Evidence suggests that share prices typically underperform (almost 10 percent annualized) from eight months before a female CEO is appointed, while women-led companies outperform between eight and 12 months after the appointment (14.4 percent annualized).

However, evidence of a glass cliff is mixed. The report finds no significant difference in company ROE between female and male CEO appointments, and that women are actually appointed to companies with higher cash flow returns on investments. After examining asset returns, firms with male appointments saw a 12 percent decline versus 16 percent for female CEOs in the prior 12 months before taking control, which could explain the greater market underperformance of companies with female CEO appointments.

Women on Boards and Senior Management

Although boardroom diversity has increased 6 percent in two years, the findings show there is no consistent correlation between higher diversity in the boardroom and increased participation of women in senior management. Paradoxically, the efforts made to increase gender diversity in boardrooms can limit available female talent in senior management and hinder expanded representation for women in executive positions in the future.

Female participation in senior management (CEOs and those reporting to CEOs) has increased from 12.9 percent globally in 2014 to 13.8 percent. However, an exact matched-set data comparison shows representation has increased much less, from 13.6 percent to 13.8 percent. Just 3.9 percent of CEOs in the CSG 3000 are female, barely unchanged from two years ago.