Mumbai: Have more women on company boards. Not because it is good for your public image. Not because you have to meet government norms.
But because it makes good business sense—boards with women provide better financial returns than those without.
That’s the finding of a TOIcommissioned study on the co relation between companies with women on board and profitability. An analysis of return on equity (ROE) data of top 100 Indian firms (BSE 100) by Randstad, a leading HR services provider, says that companies with women on their boards have a positive impact on ROE.
The study shows that the board of a private sector firm, run by a professional CEO with a mix of men and women, helped ROE rise by 4.4% in 2014 over the last year. In contrast, a men-only board of a similar firm saw its ROE rise by only 1.8% in the same period. This holds true even for family-run firms. Those with more than two women directors saw their ROE rise by 1% while those with only men on board fared worse, showing a negative difference of 1.6%.
When all private companies with women on their boards were considered, the findings held: ROE was higher by 1.4% over 2013 as against no difference for companies with only men on their boards.
That it makes business sense to have solid representation for women in senior leadership and board positions is very clear to companies such as Godrej Consumer Products (GCPL), which has three women on its board. For one, almost 50% of the Indian population comprises women and an even higher percentage of them are decision makers in purchasing consumer products. “So, it just makes sound business sense to have adequate levels of representation of both genders. Our board discussions are a lot richer as a result of having a diverse representation on the board,“ said Vivek Gambhir, MD of GCPL, whose current ROE is around 20%, while the sector median is around 11%.
Vijay Govindarajan, management guru and Coxe Distinguished Professor at Tuck School of Business, Dartmouth says diversity is the key to maximizing mega business opportunities. “Approximately 50% of the world’s population is women. If we have to harness the full power of human imagination, we must reflect that diversity in all aspects of business,“ Govindarajan said.
While the deadline to induct a woman director on the board for listed companies was recently extended by six months, this analysis suggests that companies may want to hasten the process, given the additional bang for the buck that a gender-diverse board brings to the table.
“The responsibilities held by boards of director today are very different from what they were a few years ago. And, diversity at the corporate board levels helps to look at issues and decision making from different perspectives. Also, there are discernible benefits to having gender diversity at the corporate board levels,“ said Moorthy K Uppaluri, CEO, Randstad India & Sri Lanka.
Unfortunately , data on women’s participation in top management in India is still dismal. Overall, women hold just 9% of the total number of board positions across the companies listed on BSE 100.Only five are headed by women CEOs. Of these, only ICICI Bank, which is headed by MD & CEO, Chanda Kochhar, has shown a positive difference in ROE with 0.9%.
Kochhar stresses the need for gender diversity but feels there are two or three factors due to which there aren’t too many women on company boards. “It’s a relatively recent phenomenon. This is the culmination of a social process which saw women starting to take up careers about 30 years ago. It takes time to build a career,“ she said.
Secondly , women continue to be under-represented in the workforce. “You have only about 20 women for every 100 qualified job applicants. Further, many women drop out of the workforce after a few years,“ she added.
When an organization gets women on its board, there is a trickledown effect with respect to gender balance as it puts pressure on boards to bring more women into the organization, says Rohini Anand, senior VP & global chief diversity officer, Sodexo.
“In a recent internal global research, we found that in entities that have a gender balance, there was higher engagement as compared to those entities which were not gender balanced. Similarly , brand awareness was much higher in entities with a gender balance and so was client retention. When we looked at the financial performance, it was again much higher in an entity which had a gender balance,“ said Anand.
Industry-wise data suggests that information communication technology and consumer goods sector has the highest representation of women in their boards with 13.3% and 13.1%, respectively .The lowest representation of women has been found in the energy and infrastructure sector with 5.4%.
The global scenario is no different. According to Credit Suisse Research Institute’s `The CS Gender 3000: Women in Senior Management’, encompassing over 3,000 companies and 28,000 senior managers across 40 countries, companies with higher female participation at board level or in top management exhibit higher returns, higher valuations and higher payout ratios. As per the report, board diversity has increased in almost every country and every sector, progressing from 9.6% in 2010 to nearly 12.7% at the end of 2013. It said the 2013 sector-adjusted ROE of companies with at least one female board member was 12.2% compared to 10.1% for those with zero representation.
Source : The Times of India
Date : 27th Oct 2014