Written by: Karan Arora
A large body of evidence in the past has found a positive business case for having more women in company boardrooms. Consulting firms, information providers and financial institutions such as McKinsey, Thomson Reuters, Deloitte, Catalyst and Credit Suisse have undertaken studies that conclude that the presence of a greater number of women in boardrooms has a positive effect on the firm’s bottom line.
Take, for example, this study conducted by Catalyst in 2017 which found that companies with a higher number of women board members reported a 42% greater return on sales and a 53% higher return on equity than others.
While these statistics have an intuitive appeal, peer-reviewed academic research says otherwise. A study undertaken by Katherine Klein of the Wharton School, University of Pennsylvania, concludes that the presence of more female board members does not improve or worsen a firm’s performance. Her study suggests that the relationship between board gender diversity and company performance is either non-existent or very weakly positive.
While studies have found that firms with more women in the boardroom tend to have slightly higher “accounting returns”, the average correlation between board gender diversity and firm accounting performance was just 0.047. The average correlation between board gender diversity and firm market performance (stock prices, shareholder returns) was even smaller and statistically insignificant.
This is partly why gender diversity in the boardroom isn’t pleasing investors. For them, improving shareholder value is the company’s ultimate responsibility. In fact, Isabelle Sonal and Kaisa Snellman of INSEAD in their study suggest that investors may even infer from greater gender diversity in the boardroom that the Company is less worried about shareholder value than other objectives, even in cases where women are promoted or hired for board positions based on their merit.
While Klein’s study is certainly eye-opening, it downplays the other impact non-male board members have on companies. Return on equity is not the only measure of a company’s success. Stakeholder returns, sustainability, and the development of human capital are now being looked upon as other measures of a company’s success. There is still a business case for having more women in the boardroom.
A study on existing literature conducted by the Harvard Law School Forum on Corporate Governance shows that companies with diverse boards score higher on ESG performance metrics more often than those with non-diverse boards. This points to the fact that companies with diverse boards adopt better sustainable practices. Furthermore, the study shows that the longer a company has a diverse board, the more likely they are to improve their sustainability practices over time.
The study draws a strong link between performance on non-financial metrics and gender-diverse boards on three grounds. One, gender-diverse boards manage risk better. Decision-making is made easier in the corporate setting when leadership has gender diversity. It not only helps with effective leadership but companies also know how to respond to risk better.
Other studies imply that women and men have different attitudes towards risk and economic principles. It is because of these differences that a gender-diverse board can have a balanced decision-making process. This is also perhaps why gender-diverse boards perform better on ESG metrics since board oversight over these parameters makes for another form of risk management.
Two, boards that have more women are able to develop a comprehensive understanding of the central company stakeholders. Women can provide a deeper insight into consumer trends and priorities for the companies of the boards they serve. This is especially important today as women possess a large amount of purchasing power globally as well as in India.
Companies with gender-diverse boards are more likely to make decisions that are responsive to customer tastes. More diverse boards may also have greater insight into issues like corporate social responsibility and environmental stewardship. Academic research finds that corporate social responsibility affects consumer behaviour. Thus, diverse boards may be quicker to spot and respond to new consumer trends.
Three, gender diverse boards display less absenteeism and more effective functioning. A study of the financial crisis found that directors in gender-diverse boards had higher attendance, and diverse boards were more effective in dealing with crises.
Female directors had fewer attendance issues compared to their male counterparts. The study found that as the number of female directors increases, male attendance also soars. This in turn helps boost the overall performance of the firm. Improvements in attendance are likely to help the board better evaluate all risks since all members are available in the same place at the same time.
Communications firm Weber Shandwick, in their research, titled the ‘Gender Forward Pioneer’ (GFP) 2016 Index, found that those companies designated with a Fortune “Most Admired” status have twice as many women in senior management as those with lesser regarding reputations (17% v. 8%).
Having a good reputation goes beyond just ‘feeling good’. For long, researchers have agreed that having a good corporate reputation is one of the most important intangible assets that drives a company’s performance. Research from 2016 showed that “positive corporate reputation enhances consumers’ purchase intention, attitude towards the company and its products, and even brand loyalty.”  Leslie Gaines-Ross, chief reputation strategist at Weber Shandwick in an interview with Forbes quotes, “Consumers increasingly care about the company behind the brand”.
Having a good corporate reputation can also help a company recruit and retain high performing employees. Having a good corporate repute is important for companies to compete in the talent wars, especially in the case of startups. The numbers support this idea.
In 2008 the public relations consultants Hill & Knowlton surveyed 527 MBA students in 12 top business schools in the United States, Europe, and Asia. The study found that 96% of these students said that reputation was an important factor in their choice of a potential employer. Prospective candidates may be extremely hesitant to join a company with a bad corporate reputation and might seek a significant pay to get on board. In other words, company reputation can have a significant impact on staff recruitment, retention, and salary expenses.
Gender-inclusive leadership is also associated with increased corporate social responsibility. A study conducted by Harvard Business School in association with Catalyst focusing specifically on how women leaders might impact CSR found that compared to companies without women board members, companies with gender-diverse leadership teams contributed more charitable funds.
Other similar studies demonstrate that women board members are linked to increased philanthropy as well as increases in other CSR areas, such as environmental CSR. This was not just limited to the quantity of CSR but also the quality of CSR. The study also speculates that due to the spotlight that gender-inclusive leadership puts on gender issues in their CSR strategies, they are able to position their organization for sustained growth. The impact of CSR on building corporate reputation is well documented.
An empirical study conducted in 2015 on the advantages of female leadership  showed that, on an average, teams led by female leaders perform better than those led by men. This advantage relied on a number of other factors, such as team-member functional diversity, team size, and the extent to which the team members were geographically dispersed.
More specifically, women leaders fared better at leading bigger and more functionally diverse teams than their male counterparts. In addition, female leaders were better able to foster higher levels of participatory cooperation which is essential for performance in geographically dispersed teams, something that has become standard during Covid-19.
Women leaders are also better equipped to lead teams in virtual work environments. This can be attributed to women having more positive attitudes toward using technology to communicate with coworkers compared to their male counterparts.  Other female characteristics, such as strength in socially oriented communication and a participatory leadership style, that can help overcome some of the challenges associated with virtual work. 
Sexual harassment is more likely to occur in work environments where leadership is male-dominated.  A study conducted by Offermann and Malamut found that perceiving that one’s supervisor would be supportive and take action had a large impact on reporting of sexual harassment. Having women in the boardroom can lead to a greater likelihood that incidents of sexual harassment.
In light of the mounting evidence of the pervasive, negative impact of workplace harassment on companies, women in the boardroom can have a positive impact in making workplaces safer while saving millions of dollars in lost productivity, legal costs, and losses due to employee turnover.
Global recruitment platform MyHiringClub.com and Sarkari-Naukri.info ranked India 12th worldwide in women member presence on boards in their study ‘Women on Board 2020’. The study, that collected information from 628 listed companies in India, found that 55% of them have women directors. While this is 14% higher than last year, India still severely lacks as compared to other countries, such as Norway (40.72%) that topped the list, the United States (20.41%), and South Africa (19.84%).
The reason for this is evident – contrary to the general trend of increasing board diversity, a number of companies have seen a reduction in the diversity on their boards, Tata Global Beverages, Axis Bank and HDFC Bank to name a few.
The Companies Act, India’s primary Company regulation law, mandates that each company have at least one woman director on the board. While compliant with the law, 91 of the 100 companies listed on the BSE-100 have never had more than one woman director in the last 5 years.
To give some perspective, companies with the most gender-diverse boards are leaders in their relevant market/sector – Apollo Hospitals with 41.6% female board members is the country’s largest private sector healthcare provider, and Godrej with 35.7% female board members enjoys a stronghold in the household consumer products with most of their products ranking first or second in the specific relevant market. Based on these numbers, it is indeed strange that some of India’s top companies are still hesitant to promote more women to their boards beyond the mandated ‘one woman board member’.
Research is likely to continue to find correlations between having more gender-diverse boards and better financial performance. It is, however, important for companies to recognize the potential benefits of having more women in the boardroom to effectively recognize and employ their leadership talents. At the end of the day, it’s in everyone’s best interests to have access to equal opportunities.
 Brown, T. J. (1997). Corporate associations in marketing. Corporate Reputation Review, 1(3), 218–233; Saxton, M. K. (1998). Where does corporate reputation come from? Corporate Reputation Review, 1(4), 393–399.
 Post, C. (2015). When is female leadership an advantage? Coordination requirements, team cohesion, and team interaction norms. Journal of Organizational Behavior, 36(8), 1153–1175.
 Lind, M. R. (1999). The gender impact of temporary virtual workgroups. IEEE Transactions on Professional Communication, 42, 276–285.
 Muethel, M., Gehrlein, S., & Hoegl, M. (2012). Socio-demographic factors and shared leadership behaviours in dispersed teams: Implications for human resource management. Human Resource Management, 51(4), 525–548.
 Willness, C. R., Steel, P., & Lee, K. (2007). A meta-analysis of the antecedents and consequences of workplace sexual harassment. Personnel Psychology, 60(1), 127–162.
About The Author: Karan Arora is a final year law student with a keen interest in labour laws and labour compliance.
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