Gender diversity boosts the financial performance of firms

Wed, 19 Aug 2020 10:57:00 BST
Gender diversity has a
Gender diversity has a "significant" effect on the financial performance of companies, the study found

Increasing gender diversity in FTSE100 boardrooms has had a "positive and significant" effect on the financial performance of firms, according to a new study. 

Companies with three or more female directors significantly outperformed those with less diverse boards, reveals an analysis of 12-years' worth of data. 

Researchers from Glasgow Caledonian University and DeMontfort University matched the performance of companies with their boardroom appointments as part of the first study to examine gender diversity and firm performance in the UK. 

They tracked the performance of companies, from 2005 to 2016, to look for trends in the three years after a female director was appointed. The study found the positive effect on financial performance is "highly significant" when three or more females are appointed compared to lower levels of female board representation. 

Researchers also analysed the qualifications of female directors in FTSE100 companies. Figures show that although 74% have either a master’s degree or PhD and one in three have graduated from top tier institutions like Harvard, Stanford, Oxford, and Cambridge, only 12.8% hold senior executive positions. 

Dr Sanjukta Brahma, senior lecturer in Financial Services at Glasgow Caledonian University and one of the authors, said: "We've found an unequivocal positive and significant relationship between gender diversity and firm performance. 

"The economic case for gender‐balanced boards is as much as it is about improving firm performance as it is about promoting equal opportunities for women.  

"Therefore, increasing female representation in the boardrooms will help achieve long‐term sustainable change in the workplace, responsible governance, and competitiveness in the global marketplace." 

The paper, published by the International Journal of Finance and Economics, quotes data from Bloomberg that states the average age of female directors in the FTSE100 is 58 and, on average, these directors hold positions on three boards. 

Dr Brahma added: "Firms have come under intense pressure to improve gender diversity on corporate boards, particularly, after governance scandals at Enron and WorldCom in the United States, and the global financial crisis. 

"Indeed, the question on the lips of many people including policymakers is: Would things have been different if corporate boards had more women at the helm of affairs in these companies?" 

In 2017, the UK government published the Hampton Alexander report which recommended FTSE100 companies to have 33% females in their leadership teams by the end of 2020.