Business on the lady

The presence of women on the board of directors improves a company's financial performance

The role of women in the leadership of large corporations must be radically reconsidered. The public organization Catalyst Inc, specializing in the protection of women's rights in labor relations, addressed American shareholders and business owners with a call to more actively “dilute” the weaker sex with traditionally male boards of directors. So that the call did not look like the usual lamentations of followers of feminist ideas, activists of the organization presented to the public a serious study of the financial activities of more than five hundred leading US companies and tried to trace the connection between the presence of women in management and changes in a number of key indicators of business success.

The study found that companies with at least three women on the board of directors demonstrate significantly better financial performance, says Catalyst Inc President Ilene Lang. “Including women on company boards as representatives of all financial stakeholders really ensures a better outcome,” she was quoted as saying by Reuters.

Representatives of the public organization claim that representatives of academic economists also took part in the study. It was on their advice that the return on company shares, return on sales and return on invested capital were chosen as the main markers of success. According to experts, it is these indicators, and not, for example, stock quotes, that make it possible to more accurately judge the effectiveness of management. The reporting of 520 leading corporations that were in the top 500 of Fortune magazine for 2001-2004 was analyzed. Comparing the “leaders” in terms of the number of women on the board of directors with the “outsiders,” experts came to the conclusion that the former had an average 53% higher return on shares, a 42% higher return on sales, and a 66% higher return on invested capital.

Naturally, the analysis of financial statements was accompanied by depressing statistics from a feminist point of view, showing that in the community of top managers, women constitute a complete and unequivocal minority. In 2006, they accounted for 14.6% of seats on the boards of directors of the largest companies. After studying the pace of gender change in management, Catalyst Inc. executives concluded that achieving equal representation would take 73 years.

However, the study, published by a clearly feminist organization, seems to have subtext that is no longer directly related to the fight for the rights of the weaker sex in business. The distrust of American investors in the public financial statements of blue chips, caused by a series of high-profile scandals involving dishonesty of top management, is forcing stock analysts and economists to look for unconventional “signals” of corporate success, including in the personal lives of board members. This year alone, two studies have emerged that explain what a shareholder can infer about a company's financial performance based on knowledge of the CEO's buying habits or changes in his family composition.

In particular, New York University Business School professor David Ermak, having studied data on real estate owned by the directors of 500 leading companies and the form of its acquisition, derived a “formula” for the relationship between the price of shares and the purchase of a home. In turn, a group of Danish and American economists, having analyzed the statistical reports of several thousand companies in Denmark, came to the conclusion that a tragedy in the family of a top manager also affects production and financial indicators. For example, the death of the CEO's mother-in-law promises a slight increase in profits, while the death of a spouse or child will almost inevitably be accompanied by a decrease in profits by 15-20% over the next two years. A study by Catalyst Inc. showing that the presence of women in the management of a large firm is an indicator of its potential success will also certainly not be the last off-market benefit for investors.

Fedor SEREBRYANSKY