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Why Corporate Boards Need More Women

By Mark Whitehouse

Want to improve your company's performance? One way might be to get more women onto the board of directors.

In a paper presented today at the annual meeting of the American Economic Association, Miriam Schwartz-Ziv, an economist at Northeastern and Harvard Universities, looked at Israeli companies with a substantial share of government ownership -- one of the rare areas where women play a significant role on corporate boards. Thanks to a gender-diversity law, women hold roughly 37 percent of directorships at such companies. The high rate of female participation is crucial, because Schwartz-Ziv sought to answer a question that previous studies hadn't: whether there is a critical mass beyond which the presence of women on a board influences a company's performance.

The results are compelling. At meetings with at least three directors of each gender in attendance, boards were twice as likely to take actions such as demanding added information or suggesting alternatives to executives' proposals. Companies with gender-balanced boards were also more likely to get rid of chief executive officers during periods of poor performance. On the financial front, they generated significantly higher returns for shareholders.

What is it about women that makes companies work better? Schwartz-Ziv notes that members of gender-balanced boards communicate with each other more, a phenomenon that might be driven by the different interests and values that women bring to the table. Some research has also shown that men's attendance improves when women are present.

Companies in most countries, including the U.S., have a long way to go to reach gender balance. Schwartz-Ziv notes that -- with the exception of some Scandinavian countries -- the female presence on boards typically ranges from 5 percent to 16 percent, rendering them ill-suited for studying the effects of female participation beyond very low levels.

To be sure, there's no guarantee the experience of a small group of Israeli companies will apply more broadly to companies around the world. One way to find out: Appoint more female directors.

(Mark Whitehouse is a member of the Bloomberg View editorial board. Follow him on Twitter.)

For more quick commentary from Bloomberg View, go to The Ticker.

-0- Jan/04/2013 19:02 GMT

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