Online car-auction company Copart Inc, announced the appointment of Diane Morefield, chief financial officer of CyrusOne Inc, to the board last week.
According to a report by Equilar, a research firm that analyzes company’s boards, one in eight S&P 500 boards was all-male in 2012. Women now make up 27% of all board seats, a 17% jump from 2012.
Investors have steadily stepped up the pressure on companies to address gender diversity in recent years. Blackrock in 2018 issued new proxy voting guidelines that stated that it expects to see at least two women on the board of its portfolio companies. In 2017, State Street Global Advisors, which launched the "fearless girl" campaign, voted against the reelection of directors at 400 companies that failed to take steps to add women to their boards.
The issue of gender balance has also grabbed the attention of lawmakers. California became the first state last year to pass a law requiring all publicly-traded companies headquartered there to have at least one woman on their board by the end of 2019. The U.S. House Committee on Financial Services held a meeting last month to examine proposals to increase the diversity of America's boards.
The UBS Chief Investment Office (CIO) says gender diversity is more than just a social issue, it also makes business sense.
"Insights from the field of social psychology find important benefits of diversity in group decision making processes," according to CIO strategists Laura Kane and Michelle Laliberte. "Women in leadership broaden the diversity of skillsets and perspectives, and also influence the overall functioning of the boards and teams in which they operate."
One study* examined 16 critical skillsets and found that of the 594 directors appointed to S&P 600 Small Cap boards between 2010 and 2013, the addition of new skills was larger for female than male appointments. In fact, four out of six female director-dominant traits were represented in only a small proportion of the boards studied: human resources (29%), risk management (33%), sustainability (33%), and political/government (48%).
From an investors perspective, there is evidence that suggests that greater female representation is associated with higher profitability. "We found that, in the US, Russell 1000 companies with women making up at least 20% of the board and senior management had higher profitability across various such as return on assets, return on invested capital, and return on equity, relative to their less gender-diverse peers," says Laliberte.
A 2016 study** from the Peterson Institute for International Economics found that for profitable firms, a move from no female leaders to 30% representation is associated with a 15% increase in the net revenue.
CIO believes while it is difficult to isolate the presence of female leaders as a direct cause for outperformance, gender balance may be a reliable proxy indicator of better-performing companies when mining for stocks.
CIO conducted a regression analysis of returns over a six-year period to independently assess whether more gender-balanced S&P 500 companies outperformed the broader market. It found that gender-balanced companies yielded positive outperformance after controlling for company size and style.
A separate CIO analysis of Russell 1000 companies found that gender-balanced companies have higher dividend yields, on average.
Investing through a gender lens is a CIO theme. For more information on how to invest in this theme, please see Investing with a Gender Lens, 5 March 2019