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Guiding Trend 9 November Nov 2018 0830 9 November 2018

The data says it all: the more women on a board of directors, the better the company’s performance

CONSOB’s latest financial report, “Boardroom gender diversity and performance of listed companies in Italy”, is the first in-depth study, using dynamic economic modelling, on the impact of having women directors on the board.

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Gender diversity boosts a company’s value. It is a hypothesis that has been shown to be true in recent years, one that has seen many countries adopt various legislative and self-regulatory initiatives aimed at increasing the involvement of women in the management of listed companies. It is all based around the theory that having more women on the board can have positive effects on a company’s performance. And with that in mind, the findings of the latest financial report, Boardroom gender diversity and performance of listed companies in Italy, published by CONSOB (the Italian government authority responsible for regulating the securities market), must not go unheard.

«The presence of women on boards of directors increases companies’ revenues, but a decent ‘critical mass’ is required to achieve such positive results - at least 17-20% of the board must be women» confirm CONSOB’s researchers.

This is the first time a more complex study has been carried out on the matter, using dynamic economic modelling. And the results are fascinating. «It is especially when the percentage of women surpasses a specific threshold - between 17% and 20% of the board - that a a company registers a positive and noticeable effect on its performance», the report summarises.

When the percentage of women surpasses a specific threshold - between 17% and 20% of the board - that a a company registers a positive and noticeable effect on its performance.

Having just one woman on the board of directors, the paper writes, presents no opportunity for a decisive impact on the company’s results. Net change is only seen when there are two or more women, if we consider the average Italian board size of around 10 members. With 20% female membership, the only effect is on ROS (return on sales), to the tune of 0.79. Far more positive effects can be seen if the proportion of women reaches 30%: a 0.51 increase in ROA (return on assets), 1,734 in ROE (return on equity), 0.67 in ROIC (return on invested capital) and 6.82 in ROS.

Furthermore, the study calculates the impact of the so-called Golfo-Mosca law, introduced in Italy in 2011. It requires listed companies to create selection criteria that guarantees a gender balance among directors, with the less represented gender representing at least a third of each company’s elected directors.

The analysis shows the law has had a positive and significant effect on the proportion of women, which grew, on average, by 17% immediately following the introduction of the law (referred to as the instant reform effect) and later by 11% (the follow-up effect).

Having just one woman on the board of directors, the paper writes, presents no opportunity for a decisive impact on the company’s results. Net change is only seen when there are two or more women.

Bringing these new female directors onto boards has also brought about other changes to the boards of listed companies, such as reducing the average age, increasing diversity in terms of age, professional background, average level of education and the presence of female ‘interlockers’ (those who sit on the board of more than one company).

There is no doubt about it: boards that value gender diversity tend to work better and are more open to innovation. Such internal diversity allows them to tackle difficult situations, giving them better skills in terms of how they make decisions, take action and lead. Of course, there is a sticking point: the law has a fixed time limit, ending with each company’s third board term (which will occur in 2021). It is thus clear that CONSOB’s working paper - which expresses the importance of moving in a more gender sensitive direction - serves as a warning and not just for the future of businesses: it also deserves global attention.

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