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Want More Women on Boards? This Stat Helps

It has to do with performance.
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Photographer: Davis/Topical Press Agency/Getty Images

A global effort to bolster the number of women on corporate boards is taking longer than it should. But the recent performance of companies that lead their peers on this measure may accelerate change.

An MSCI study published this month shows just seven companies in its key global index, comprised of more than 2,500 members, have boards that are dominated by women. But of these seven, more than half have outperformed their industry peers. The list is led by luxury retailer Kering FP, which has seven women on its 11-person board. The Gucci owner has outperformed the entire index as well as the more-specific consumer discretionary index not only on a year-to-date measure, but also since the company added two more female directors in April 2016 to put women in the majority. 

Still the Minority

Of the 2,541 members of the MSCI All Country World Index, only seven had predominantly female boards. Four of these outperformed their respective sector indices this year.

Source: MSCI, Bloomberg

*Director data as of Oct 16, 2017 *Return data include reinvestment of dividends where possible

While it's a small sample, the outperformance of this group is a supportive data point for heavyweight investors BlackRock Inc., Vanguard Group Inc. and State Street Corp., which are increasingly committed to backing more diversity on boards.

Importantly, there is some momentum in this area: The proportion of female directorships is climbing, albeit a little sluggishly. As of October, women held 17.3 percent of directorships at MSCI ACWI companies, up from 15.8 percent in 2016. As for getting to a targeted goal of 30 percent, that remains a stretch and likely won't occur until 2028, a year later than MSCI's previous projection of 2027. 

Room to Improve

Certain sectors have a greater proportion of companies with three or more women on their boards, leaving the laggards -- such as IT and energy -- to play catch-up

Source: MSCI

Still, there has been progress: An earlier campaign to reach at least 20 percent by 2020 has already been met. Women hold 21.7 percent of directorships at U.S. companies within the MSCI ACWI index and while that's better than the global average, companies could do more. As a nation, it's notably ahead of Asia where boards comprised entirely by men are fairly common, especially in countries like Japan. But the U.S. is well behind parts of Europe like France, Italy and Norway, where there are mandatory gender quotas. 1  On this basis, it also trails countries such as India, which requires public companies to have at least one female on a board of directors -- a base figure that the U.S. should aspire to eclipse even without it being made compulsory.

An improvement in gender balance on boards of U.S. corporations may be easier to achieve in the current climate. Recent allegations of sexual harassment across industries and in public life have shaken up the status quo by shining a light on the entrenched conditions and practices that have allowed abuse to persist -- and that in some cases may stymie growth and innovation. Companies now have the chance to be proactive, not reactive like Uber Technologies Inc. was when it added a second and then a third woman to its board after a harassment scandal. Or like Creative Artists Agency LLC, which said it would revise its management structure to include more women after being called out last week by the New York Times as part of Harvey Weinstein's "complicity machine." 

He Said, She Said

When it comes to directors' perceptions of the benefits of board diversity, gender makes a difference. Interestingly, half of female directors surveyed said their board is diverse enough.

Source: PwC 2017 Annual Corporate Directors Survey, October 2017

To be fair, most of the largest U.S. companies -- or more than 98 percent of the S&P 500 -- have at least one woman on their boards, but this number drops to below 75 percent among smaller public companies, according to the data arm of Institutional Shareholder Services, ISS Analytics. So there's room for improvement.

Not Gender Alone

Directors have a broad view of how to achieve diversity of thought in the boardroom. While gender is a key factor, it's closely followed by others.

Source: PwC 2017 Annual Corporate Directors Survey (October)

If companies need more incentive to make a change, there's the relative underperformance of companies with male-only boards as of October, at least in the U.S.:

Too Much Testosterone?

Only a third of the companies with male-only U.S. boards in MSCI's ACWI index have outperformed sector peers. Separately, the same fraction beat the overall benchmark index.

Source: MSCI, Bloomberg

*Brighthouse returns date back through July, when the company was spun out of MetLife ^Based on Class C shares **Total returns include reinvestment of dividends where possible ***The five outperformers by sector are: Southern Copper, HollyFrontier, Centene, DIamondback Energy and Veeva Systems ^^Director composition data as of Oct. 16, 2017. HollyFrontier added two female directors in November.

Notably, of the companies that outperformed above, refiner HollyFrontier Corp. added two women to its board just last month. 

On a bigger scale, recent research from Citigroup Inc. found that the GDP in advanced economies could grow by 6 percent if gender equality in the workforce is pursued -- a very real economic benefit. There's no doubt that raising labor participation, hours worked and productivity to parity will be a massive challenge. But if there's willingness to get closer and the tone is first set at the top or in boardrooms across the globe, that's a step in the right direction. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
  1. Further improvements regarding gender parity are also expected following a new European Commission requirement for large, listed companies in the European Union to disclose board diversity information.

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net

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