Women on Boards: A move that pays off [SlideShare]
Before the 1900s, the Industry Circle would have laughed off the involvement of female counterparts in business, let alone the presence of women in leadership positions.
However according to a study by Stanford University, things changed post 1985, when Fortune 250 companies started having women for key roles at the top.
The rise in numbers since then, thought not very impressive has been pivotal in changing the outlook towards female entrepreneurs and the value they can bring to the table.
Apart from credibility and contribution in generating business profits, businesswomen are coming to the forefront, thanks to the legislative quotas mandated in varying proportions by developed as well as emerging economies.
Women Leaders – The Real Game Changers: A quick glimpse of world data
According to a recent report by Index Provider MSCI, companies with strong female leadership deliver a 36% higher return on equity.
This study included 1,643 companies covered by the MSCI World Index.
Strong Female leadership constitutes those institutions that have three or more women on the board or a female CEO and at least one other female board member.
Diverse executive boards outperform peers run by all-male boards
Other interesting observations reflected during the course of research are as follows:
- Over an extended period of time i.e. from the end of 2009 to September 2015, companies with woman business leaders scored an average of 10.1% return on equity as compared with 7.4% for those firms without women on boards.
- Companies with poor representation of women leaders had to face more controversies. 24% more governance related issues and corporate scandals than the average hit them.
- Companies where the CEO is a woman were more likely to have more than one woman on the board.
- US Companies were more likely to appoint a female CEO and a CFO than their European counterparts, even while lagging in selecting women directors.
A previous study by Grant Thornton of the listed companies in US, UK and India revealed that diverse executive boards outperform peers run by all-male boards.
Opportunity costs for the all-male boards (in relation to the return on assets) for all 3 markets combined, stood at a staggering US$655 billion for the year 2014.
Perks of having Women Business Leaders on Board
Studies have proven that companies perform better when they have at least one female executive at the top.
Though over the past decade businesswoman at top has seen no swift transition, there has been a considerable global push to enable corporate board diversity due to the benefits ensued.
- An environment for better Decision Making is effected owing to women leaders’ inclination towards fresh perspectives, questioning and collaboration of ideas.
- Helps to foster the principle of inclusive leadership at government and industry level. Moreover, consensus building tendencies of female entrepreneurs aid companies perform better under financial crisis situation
- Women executives are known to build better work place relationships by weaving empathetic company culture, cutting down the risks of controversies and scandals
- The customers view companies with businesswomen as progressive as they are perceived to be more equipped in addressing the concerns of clients, employees, shareholders and local community. Several rating agencies and investment funds use the extent of gender diversity reputation as one of the investment criteria.
- Women directors are likely to be more in tune with women ‘s needs than men which aids to develop successful business offerings. This is all the more important given the fact that women drive approximately 70% purchase decisions by the consumers in European Union and 80% of them in United States (Source: Catalyst Report, 2012)
- According to a Bloomberg report, women on board often result in better stock performance in unstable markets and also cheaper mergers and acquisitions.
Challenges to Overcome for Women Business Leaders
While the idea of having woman leaders heading top executive roles seems to be idealistic and rewarding, a quick reality check of present times tells a different story.
The pathway to having women on boards is strewn with its fair share of challenges like:
- Women are generally represented at non-executive roles, with only a marginal few occupying the roles that really matter.
- Quota system of appointing women on board has met with criticism as it has in many cases led to appointment of under qualified women.
- Industry experts have looked down upon the “Golden Skirts” phenomenon where a single woman occupies multiple board seats due to dearth of required competent talent.
- World Economic Forum’s Gender Gap Report 2015 reveals that annual pay of women has just begun to equal the amount men were earning 10 years ago.
Way Ahead for Women Leaders
Experts estimate that the scenario will change in favor of women by 2027 where 30% board seats will belong to businesswomen.
This journey can be faster and be achieved by 2020 if following 2 mechanisms pop into action.
Accelerated Conversion – Doubles the proportion of new board seats taken by women
Accelerated Turnover – Turnover of existing board seats could increase making way for women
Worldwide there have been small but significant steps to boost women representation at executive level.
The new Canadian Prime Minister Justin Trudeau created country’s first cabinet with equal numbers of men and women.
Malaysia and Germany have been marching ahead to achieve 30% women on boards by end of 2016.
Norway, France and Spain having adopted the quota mandate, are already pioneering the women leadership trend with impressive numbers ranging between 35%-40%.
US is steadily working on a national campaign called 2020, to attain modest goal of 20% women directors by 2020 (Source: Catalyst).
Companies need to make conscious effort to boost performance through board diversity and ensuring female participation for executive roles.
The investors, instead of waiting for quotas and mandates can put positive pressure on companies to have gender balanced boards.
Lastly, governments should plan certain incentives for mixed executive boards, as they are known to generate higher productivity and return on assets that ultimately strengthen the global economy.
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