Why women on boards are good for business

Lydia Smith
Writer, Yahoo Finance UK
Businesswoman addressing a meeting around board table. Group of business people having board meeting in modern office.

For the first time since the London Stock Exchange was established in 1571, the FTSE 350 has 30% of board positions filled by women.  

The latest data from the 30% Club, which encourages greater representation of women on boards, shows that 903 directorships are held by women out of 3008 positions in total. When the 30% Club was founded by Dame Helena Morrissey in 2010, only 12.5% of FTSE 100 boards and 9.5% of FTSE 350 boards were female. 

“This is an incredible milestone on the journey towards greater diversity and gender parity on company boards. The fact that we’ve met our 2020 target ahead of time means the narrative is working,” said Brenda Trenowden, global co-chair of the 30% Club. 

“Through our engagement with our member chairs and CEOs, we have seen senior leadership amongst the world’s largest companies evolve for the better, lifting gender representation from a mere 9.5% for the FTSE 350 in 2010, to a much healthier 30.01% in 2019.” 

Far more than just ticking boxes, however, there is increasing evidence that shows having women on boards is good for business. 

Last year, a study of the UK’s 1.5m companies by the insolvency practitioners KSA Group found that companies with mixed boards are less likely to become insolvent than those with all male boards and all female boards. 

READ MORE: How to go back to work after maternity leave

The research showed the insolvency rate was 0.63% for male-dominated boards, 0.48% for female boards and 0.43% for mixed boards, suggesting that mixed boards are more likely to avoid insolvency than either all male or all female run companies. 

There’s also a body of evidence demonstrating that diversity at board and management level helps improve financial performance. In 2018, McKinsey & Company found that companies in the top quartile for gender diversity on executive teams were 21% more likely to outperform on profitability - and 27% more likely to have superior value creation. 

The research also showed the highest performing companies on both profitability and diversity had more women in line roles than in staff roles on their executive teams. 

A separate 2016 Peterson Institute study found that the presence of women on boards and in the C-suite may contribute to firm performance, in part, because women increase a company’s skill diversity. In addition, a move from no women leaders to 30% representation in profitable companies was associated with a 15% profit increase. 

There are also multiple benefits to having a diverse set of views and opinions on a board. In 2006, a Harvard Business Review study found that having women on boards can broaden the boards’ discussions to represent a wider set of stakeholders, including their employees. 

READ MORE: Why women are given extra menial tasks at work

“Research shows companies with diverse boards outperform others, outside of any financial benefit, I would suggest a traditional board make up is now seen as out of touch,” says Caroline Strachan, co-founder of Women at Work

“Is the chairman looking to surround themselves with people just like them or looking for a range of diverse opinions formed from diverse backgrounds and experiences? Some might say it makes life easier and they can deliver results faster without the debate that a diverse set of opinions might bring,” Strachan adds. “However, are they making the right decisions for the short and long term? Is the board representative of their customer base?” 

It’s equally important to ensure all workers are represented by the board, too. “Will the board also serve as an inspirational group to the employees? No one CEO or board delivers a company’s success, an engaged workforce is critical,” Strachan says.

“Having a range of ‘types’ across a board can be highly motivating for the employees, we hear comments like ‘I feel they get me’. For me it’s not about being seen as doing the right thing, it’s actually doing the right thing for your customers, your employees and ultimately your shareholders.”