Are women in senior management and board position positively associated with higher than average economic performance?

Evaluating financial performance in relation to gender can be a tricky task. Not only is there numerous ways that a researcher can decide what good performance means but even when we are comparing apples with apples we get into trouble when we try to say something in general about the data.

So what I’m trying to say is that the choices that I have made in-order to investigate gender and financial performance might differ from what you might choose as the best indicator.

The methodology of the article is fairly simple I have looked at corporate Boards and Executive management in the Danish and Swedish most traded companies 40 companies in total. From a statistical analysis, which I will not go into detail, here have I separate the companies into three groups Low diversity, Medium diversity and High diversity relative to the country. This meant that I could produce this chart of high and low diversification among the top management and board members. F.eks. as a highly diversified company in Sweden one which have more than two women on the board and more than two women in top management, while the diversification is a little different in Danish companies. The reason for the difference between countries is mainly due to different legislation and cultures related to gender.

Organisational level Highly diversity Low diversity
SE Boards >2 <2
SE Top Management >2 <1
DK Boards >1 <1
DK Top Management >1 =0 

Together, these two measurements of corporate performance will give an indication on how companies perform with different approaches to gender composition. The data is comprised of two indicators for each country one on EBIT and one on. This gives an indication of how well the companies are able to achieve a profit and earnings per share issued in relation to gender diversity and compared with an overall average.

The EBIT analysis shows that companies with low diversity in their boards and top management have a lower than average ability to produces a profit over the period. While companies with a more diversified leadership team will do better. However, gendered companies have lower or very close to average EBIT performance on the short term e.g. 2006 for Swedish and 2005 and 2006 for Danish companies. In the last period which coincides with the financial crisis and recession gender diversified companies do significantly better when it come to earnings.

When it comes to the companies’ ability to show performance in relation to shareholders the picture is somewhat different. Companies in Sweden considered as low diversified are doing better than average on the long term (e.g. 2008) and even out-performing the diversified companies. In Denmark both high and low diversified companies are able to show and EPS, which is consistent with or a little better than the average. Here the highly diversified companies are able to show earnings which are little better than the low diversified.

Companies that stand out in Sweden are Hennes & Mauritz (H&M)[1] in Sweden that shown a consistent increase in performance since 2004 (EBIT show a consistent raise to 1.93 in 2008) and who has four women in both the board and in top management. H&M women accounts for 40 % of the total board members making it one of the highest performing companies in the survey both in terms of EBIT and gender mix. Also in terms of EPS is H&M among the highest performers having more than doubled its earnings per share in the period to 2.1 compared to 2004. Among the low diversified is Scania[2] doing almost as good as H&M while Assa Abloy[3] more than halved its EBIT in 2008 compared to the 2004 results to 0.4. In terms of EPS Scania was again the best performer at 2.06 while Tele2 was doing worse than in 2004 consistently over the period and was at 0.89 in 2008.

In Denmark several of the highly diversified companies have more than doubled their EBIT (Carlsberg, D/S Norden and Rockwool)[4] but there are also several companies that have lost terrain such as Danisco[5] who lost over 40% to 0.59. Among the low diversified is DSV[6] the best performer at index 1.43 while Lundbeck[7] is the worst performing at index 0.92. Several of highly diversified companies have an EPS around index 2.0 and above (Carlsberg, D/S Norden, Roskwool and Sydbank). Most of the companies among the low diversified have increased their EPS in the range of 1.3 to 2.24 in the period.

These results can be interpreted in relation to a stereotypical understanding or the traits of men and women. When analysing the results of the highly diversified companies they can be explain using the trait of adaptability and being risk averse (Cadsby & Maynes, 2007, Daruvala, 2007). As the market leading up to the financial crisis changed rapidly and new opportunities arose were companies that were willing to adapt their business model to these changes were also able to harvest new opportunities. Hereby they could increase their earnings rapidly and produce above average EBIT results in 2007. When the crisis started in the mid 2008 the ability to adapt to changes in the business environment again became a competitive parameter. Businesses could use the trait of adaptability and use it in dampening the impact of the rapid decrease of trade on the global market place. At the same time have more gender diverse companies have been accepting less risk in their financial transaction and thereby experienced fewer losses. Companies that was receptive to changes in the market could thereby react effective and utilise opportunities before their competitors. The same companies were also able to use their knowledge to assess the risks that they were exposed to more efficiently and take action in time to reduce their loses when the market changed. The combination of being adaptable and risk averse help companies that are willing to embrace these characteristics, as they become highly competitive and able to react to changes in the marketplace.

Like the feminine traits can explain the results of the highly diversified companies (during the financial crisis) the same approach can be used in understanding the results of the low diversified companies. Male stereotypical behaviour prescribes that men are more likely to demonstrate traits that are associated with informalism and paternalism which in-turn create more rigid forms of organisations (Maddock & Parkin, 1993). This means that male dominated companies would be slower to react to changes in the environment, and they will be less likely to have connections with more distant stakeholders. A strong connection to a mentor can reaffirm that changes in the market should not be taken notice of because the mentor himself does not understand the significance of the change. The changes in EBIT among the low diversified companies are inline with this perspective as they missed the opportunities that arise in the market and were slower to adopt their business model resulting in lower than average performance.

Gender arguments can also be used to explain the changes in EPS. Companies that have a higher proportion of women have fewer tendencies to focus on shareholders as the only stakeholder than male dominated boards and top management. Women will be more likely to incorporate more distant stakeholder into the business decision process because of the trait of being collective thinking. This trait favours the company overall survival and wellbeing rather than keeping one stakeholder content, e.g. shareholder. Collective thinking favour long-term sustainability of the corporation rather than dealing with the immediate crisis and relying on keeping the shareholders content. In highly diversified companies shareholders are being cared for when earnings are high, but when the crisis hits the focus is on the company and its long-term survival and the EPS is reduced dramatically. Keeping in mind that the EBIT was considerable higher among highly diversified companies the results can be interpreted as these companies less diversified organisations are consolidating and focusing on retaining enough liquidity to maintain the level of EPS. In times where businesses have to change in order to maintain profitability the masculine trait of entrepreneurialism becomes valuable. Being able and willing to take risk is what traditionally have been the characteristics that have differentiated companies and the same applies here. However, the situation that companies is facing can be made worse if management and board is unable to evaluate the risk that they are taking and more or less guessing what the future will bring. This could be an ok situation if everybody did the same and nobody had a clear advantage thereby creating a situation where there was no clear advantage to anyone. However, a higher degree of stakeholder engagement will facilitate an improvement in quality decision-making and thereby an improved risk calculation. This means that companies that are able to display feminine traits have a clear advantage compared to companies who have to rely on their ability to guess and take risks, which might or might not pay off.


One thought on “Are women in senior management and board position positively associated with higher than average economic performance?

  1. Pingback: It’s all about what you do – from gender equality to strategic benefits « SRI Portfolio Management

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