In a study, BofA-ML said that having more women directors will improve returns and have lower earnings risk in subsequent years. It added that gender diversity can boost return on equity and market capitalisation, and that too, at less risk.
On the occasion of International Women’s Day, Bank of America-Merril Lynch (BofA-ML) tells us why more women are needed on company boards. In a study, the brokerage suggests that having more women directors will improve returns and have lower earnings risk in subsequent years. It added that gender diversity can boost return on equity and market capitalisation and that too, at less risk.
"Companies with at least two women on the board are about 2.5 times the size of firms that have less representation of women, on an average," it said.
However, the economic gender gap is still reducing at a snail’s pace and, all being equal, will not close for centuries – 202 years, the investment firm reports.
Despite having one woman board member for every four men in the S&P500 companies, just 5 percent of US companies have a woman at the helm. Since 2010, S&P 500 companies, where at least 25 percent of their executives were female, saw consistently higher subsequent 1-year median return on equity (RoE), suggesting gender diversity may drive better results, the report suggests.
The study also finds that similar to in large-caps, small-cap companies with more gender-diverse boards or more female executives have seen better financial results.
However, working women in the US are paid, on average, more than $11,000 less per year than men. That’s the equivalent of 89 weeks of food expenses or more than one year of rent (source: National Partnership for Women & Families 2018)
Europe, on the other hand, brings in some good news.
"There has been a significant shift in Europe regarding gender equality and representation. Percentage of women on corporate boards has surged 3 times over the past 15 years. Within that, those in executive positions have jumped by 60 percent over the past five years," the report claimed.
In sectors, banks, chemicals note the largest spread in the future EPS volatility between companies with high and low Board Diversity scores. Oil and gas sector is the exception where board diversity does not seem to lead to lower fundamental risk. In styles, diverse boards are helpful in mitigating the future earnings risk within cyclical stocks.
While, in the Asia-Pacific region, women comprise 49 percent of Asia’s population and 36 percent of GDP, but just 12 percent of board seats and 3 percent of CEO positions.
“Asia Pacific stocks with at least two female board members have a price-earnings valuation premium, higher net profit margins, and dividend yield," BofA-ML said.
As such, in Asia-Pacific, the problem appears to be greater in smaller firms.
Gender Diversity improves
According to the study, the diversity of the S&P 500 boards has been steadily improving over the last decade (though stalled over the past year), with the average board currently 23 percent women, up from 14 percent in 2008. But just 14 percent of companies have at least one-third of their board seats held by women. Only five companies reflect the US population and have at least half of their board seats held by women. One percent of boards remained all-male, down from 15 percent in 2008.
For Europe, the direction of such shift in the higher representation of women in the corporate sector is expected to surge as one of the European Commission goals for 2020 is to increase employment rate for women to 75 percent from current 64 percent.
National governments in Germany, Belgium, Italy, Austria, Portugal and France have introduced obligatory quotas for percentage of women on boards, with the highest share being 40 percent in Norway and France.