Female board members bring significant boost: study

New research from CIBC bolsters the business case for gender diversity

Female board members bring significant boost: study
A new report from CIBC World suggests that companies with women on their board of directors enjoy better stock-market returns.

According to the report titled The Harsh Truth, which examines data over an eight-year period, S&P/TSX companies with women on the board “produced an annual 11.1% compounded return, more than 300 bps (basis points) of outperformance compared to the zero-female board member groups,” reported the Financial Post.

CIBC Managing Director Ian de Verteuil and associate Shaz Merwat, the report’s authors, also noted that diversity levels on Canadian corporate boards were well below those in other jurisdictions such as the United States. “[This] holds true as a whole, but is astoundingly visible when looked at on a sector basis,” said the authors, observing that at least 20% of Canadian tech and energy companies have no female representation on their boards.

While systemic bias and a limited population of candidates might be contributing to the trend in certain sectors, the report found that Canadian firms were “well behind” their counterparts in the US. The lowest level of female representation in S&P500-listed US companies was found in energy, where only 5% of companies had no female board members.

More and more institutional investors are integrating environmental, social, and governance (ESG) factors into their decisions. Along with considerations such as carbon footprints and water usage, board diversity is becoming a hot topic, with more shareholder resolutions both north and south of the border reflecting an increased interest in ethical investment.

The authors took their analysis one step further by removing companies with zero female board members. This was in an attempt to control for the fact that resource companies, which are heavily represented in that group, have generally done poorly compared to the broader market.

The remaining company data was separated into three groups, with the top third having the highest proportion of women and the bottom third having the lowest. “The bottom third is still, by far, the worst-performing group,” said the report. Since there were energy, materials, and real-estate companies in the top third, however, the authors conceded that not all the sector bias was eliminated.

While some countries have taken to imposing quotas on boards to promote diversity, Canada has not done so. Instead, provincial securities regulators have recently adopted a “comply or explain” regime, requiring publicly traded companies to show board and senior management diversity representation, or provide justifications when diversity is lacking.

The federal government is in the middle of amending the Canada Business Corporations Act to include similar requirements from federally incorporated publicly traded companies.

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