January 31st, 2013 | 1:00 pm

How Do Women Improve Board Performance? Let Us Count the Ways

filed under Managing Change

By Melissa J. Anderson (New York City)

We’ve heard it before. Studies show gender balanced boards (in other words, boards with women on them) perform better than those that are composed of only one gender (almost always, men). But a new study sets out to drill down a little further.

According to Miriam Schwartz-Ziv’s study “Are All Welcome A-board: Does the Gender of Directors Matter?“, diversity in the boardroom creates several positive outcomes. Not only do companies perform better financially when there are more women at the table, but boards communicate more and take more decisive action when financial results are poor. And when there are more women on a board, individual directors (both men and women) participate more actively. The result is better run companies all around.

Gender Balanced Boards

Most studies of boardroom effectiveness only focus on the outcomes that are visible to public – such as stock performance or CEO turnover. But, as Schwartz-Ziv writes, she wanted to delve into the black box of what actually happens in the boardroom when there is a critical mass of women (over 35 percent here).

She studied the board and committee meeting minutes of eleven Israeli Government Business Companies (GBCs), for a total of 402 meetings. When the government has a 50 percent stake in a GBC, she explains, the company is required to have an “appropriate representation” of both genders – a law that has been on the books since 1993. During the years of the study (2007-2009) these boards had a composition consisting of 34 percent women (nine of the companies were subject to the “appropriate representation” rule and two of them were not). That meant that the boards that were studied had already had a critical mass of women for many years – as opposed to studies of boards in Norway, for example, which have only been subject to a quota rule for a short period of time, a factor which may influence the results of research into boardroom gender balance.

Schwartz-Ziv’s research showed that gender balanced boardrooms do indeed drive financial performance. She wrote, “…the ROE and net profit margin of these type of companies is significantly larger in companies that have at least three women directors.”

But digging deeper, she found that gender balance also positively influenced the way directors worked with one another.

Better Boardroom Interactions

According to the research, a critical mass of women (and men) improves the way a board acts beyond simple measures of financial performance.

For example, when there are more women at the table, men and women simply do more. She writes, “I find that on the level of the individual director, the presence of a critical mass of women directors increases the likelihood that both a man and a woman director take an action.”

They also talk more – when there are more women on a board, discussions tend to be longer. Schwartz-Ziv explains, “I find that in board-committee meetings, the larger the percentage of women directors in attendance, the longer the discussions – a finding which implies that women directors increase communication, particularly in small teams.”

And when when financial performance is weak, a board with more women is more likely to fire the CEO.

Then, during a “gap period” (between CEOs), women continue to influence how the board behaves. “Once again, during gap periods boards are found to be particularly active if a critical mass of women directors is in attendance. In addition, the women directors are found to be particularly active during these gap periods,” writes Schwartz-Ziv.

Finally, the research shows that male and female board members tend to focus on different aspects – men take action more frequently on “managerial” work (like firing and hiring a CEO), while women take action more frequently on “supervisory” work (like approving a financial report). That’s not to say men only focus on managerial work and women only focus on supervisory work, but that by and large there was a general trend in that direction.

Those differences are good, Schwartz-Ziv believes. “These findings imply that each gender of directors has, to a certain extent, different skills and interests.” The result is a more well-rounded board.

The analysis also points to the relationship between the gender composition of a board and the company’s financial performance – a relationship which until now has been mainly deemed correlational. Because gender has an impact on the way the board interacts within the confines of the closed meeting room, and those actions influence financial performance, Schwartz-Ziv believes the research suggests that the relationship between boardroom gender balance and corporate financial performance is causal.

3 comments

  1. Henna Inam

    Fantastic post. Keep ‘em coming. There is a lot of other great research that shows that the addition of women to any group increases the social intelligence of the group (because of collaboration and communication).

    I wrote a post on how women can get on corporate boards. May be helpful to your readers.

    http://www.transformleaders.tv/the-five-most-important-steps-to-get-on-a-corporate-board/

    Henna

  2. Five Steps for Women To Get on Corporate Boards | Transformational Leadership

    [...] How Women Improve Board Performance – The Glass Hammer [...]

  3. Wolfgang Lehmacher

    During more than 20 years in senior management positions, I have always believed and experienced that women were not only part but a major driver of the management team’s development and financial success.

    Wolfgang Lehmacher
    Partner and Managing Director (Greater China and India)
    CVA