Women – good for the bottom line

By MHP

Quite apart from the fact that the addition of females to a company’s board is certain to make it “prettier and more colourful”, in the slightly controversial words of Deutsche Bank’s Chief Executive Josef Ackermann, rather more surprisingly to some it should also substantially increase profitability as well as better reflect the composition of the company and its customers.

Last year, female executive and non executive directors of FTSE 100 boards represented a mere 12.5% of all board seats. The FTSE 250 was worse still with 7.9%. All male boards accounted for 84% of the FTSE 100 and a tiny 1 out of the top 100 firms had a female Chairman. However, this problem is not UK-centric. Female board representation varies across Europe, with countries such as Luxembourg and Italy ranking lowest at around 1-2%. Norway, where there is government intervention coupled with a Female Future programme, topped the leader board with over 40% female representation on boards.  In general, women tend to be underrepresented in management and decision making roles across the whole of Europe; on average representing only 11% of governing bodies of listed companies.

It is widely accepted that women bring many things to the boardroom amongst, including an alternative mindset, logical vision and managerial style. As one board member of a banking group commented “When women sit on executive committees the nature of interactions changes, but one woman there is not enough, you need several”. Diversity fundamentally leads to a richerrange of ideas and that in turn often leads to an improved team performance.

The McKinsey study also looked at performance comparative to a number of women in senior management functions. This clearly showed, out of nine pre-determined organisational criteria, companies with three or more women in senior management functions scored much more highly than companies without women on their management teams. A second study concluded, unequivocally, that companies with a higher proportion of women on their management teams not only had the best overall performance but also significantly higher return on equity and stock price growth compared to their male only counterparts.

Further support comes from a study of Fortune 500 companies which found that return on equity for companies with more female board directors outperform those with the least by 53%, return on sales by 42% and return on invested capital by 66%. Stronger than average results prevail at companies where at least three women serve.

There has been a significant change in attitude towards this topic recently, with the broader issue of enabling women to truly succeed and reach their full potential in business dominating the headlines over the last few months. The Davies report has set down the gauntlet for reform, with aspirational targets initially then perhaps resorting to less popular quotas. MHP has been playing a part in creating change through running the PR campaign for the 30 per cent Club, whose objective is to encourage and support Chairmen of FTSE 100 companies to achieve at least 30% female representation on their boards by 2015. The launch has captured the imagination of many journalists in the print and broadcast media who have played an integral part in introducing and maintaining this issue’s public profile.

At the current rate of change it will take over 70 years to achieve gender-balanced boardrooms in the UK. This is a debate that won’t go away and we need real, live, tangible actions that create fundamental change in the boardrooms of UK companies.