On Sunday, California Governor Jerry Brown signed a bill mandating that all publicly traded companies with headquarters in California must have at least one female board member by the end of 2019 and, for companies with five directors or more, they must have two to three female board members.
“Given all the special privileges that corporations have enjoyed for so long, it’s high time corporate boards include the people who constitute more than half the ‘persons’ in America,” Brown wrote in a message when signing the bill.
Having three or more women on a company’s board of directors helps companies perform better financially, the financial planning firm MSCI MSCI, +1.35% said in a paper in March. After analyzing a body of research on the subject, MSCI said a more diverse workforce and board of directors leads to a greater diversity of ideas, MSCI said.
Companies with three or more women on the board saw a median productivity 1.2 percentage points above those in their respective industries.
But companies with three or more women on their boards, who also use leading talent management practices, saw even more financial benefits, including higher average dividend payout ratios and return on equity. “Talent management” refers to any practices or policies a company has that helps to attract, retain and develop its workforce, a company spokeswoman said.
MSCI researched more than 600 large- and mid-sized companies in the industries of consumer discretionary and staple goods, industrials sectors and banking, in 23 “developed” markets to test the hypothesis that simply hiring more women on corporate boards isn’t enough. (Those developed markets include Canada, the U.S., 16 European countries including Sweden and the U.K. and five countries in the Pacific including Singapore and New Zealand.)
In addition to having three or more female directors over the course of three years, these companies with three or more women on the board saw a median productivity 1.2 percentage points above those in their respective industries. In contrast, those with mostly male boards and “lagging” talent management practices saw growth in employee productivity 1.2 percentage points below industry medians.
Companies with three or more women on their boards saw even more financial benefits, including higher average dividend payout ratios and return on equity.
However, some companies have a long way to go before reaching these goals. Women in 2017 made up just 16% of board seats in 3,000 of major U.S. companies tracked in the “Russell 3000” index, according to the company Equilar, which tracks the progress of women leaders. That was up slightly from 15% the year before.
There appears to be resistance, at best, or bias, at worst, against women holding these roles. Some 53% of public company directors who responded to a PricewaterhouseCoopers survey in 2016 said they believe women should hold 40% of board seats, or less. Some 10% of board directors who answered the survey — 97% of whom were men — said if a board wants to operate at its maximum potential, no more than one in five board members should be a woman.
But in other ways, there has been some progress. The number of women becoming CEOs, for example, is increasing. Of 1,043 CEOs that were replaced in 2016, 193 (18.5%) were replaced by women. In 2010, that number was 12.3%, according to the consultancy firm Challenger, Gray & Christmas. Both numbers, however, are notably low.
(This story was updated on Oct. 1, 2018.)
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