Why boardroom diversity matters to business

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The business case for boardroom diversity has been firmly established and is supported by a growing body of industry research demonstrating links between gender diversity on boards and positive organisational outcomes, according to a peak diversity body.

In a report coinciding with International Women’s Day (8 March), the Diversity Council of Australia (DCA) cited research from the US which identified higher financial performance for companies with larger representation of women board directors in three key financial measures:
 

  • Return on equity (ROE): on average, companies with the highest percentages of women board directors outperformed those with the least by 53%

  • Return on sales (ROS): on average, companies with the highest percentages of women board directors outperformed those with the least by 42%

  • Return on invested capital: on average, companies with the highest percentages of women board directors outperformed those with the least by 66%

Consulting firm Virtcom found that while diversity of board members’ skills and knowledge background was important, it was improving the representation of women and ethnic minorities on the board that had the greatest impact on diversity of perspective and thought.

Australian research has arrived at similar conclusions. The Reibey Institute also found that ASX500 companies with female directors delivered an average 11.1% higher ROE over five years than those without women directors.  

More women round the table

The introduction of ASX’s Corporate Governance Principles last year triggered a flurry of corporate activity in Australian boardrooms – and recent metrics indicate that female representation on boards is on the up. According to the Australian Institute of Company Directors, as at January 2012 women comprised 13.8% of company directors on ASX200 boards , up from 8.3% two years previous.

Also 28% of new appointments to ASX200 boards in 2011 were women, compared to just 5% in 2009; and in the first month of 2012 women comprised 50% of new appointments to ASX200 boards.

Leaky pipeline for women leaders

Despite growing interest in workforce diversity among organisations in Australia and New Zealand, just 26% have a clearly defined strategy to attract and retain women long enough to reach senior leadership positions, according to women's leadership research conducted by Mercer last year.

And in a tight labour market, even world-leading levels of support around flexible work arrangements might not be sufficient to retain women long enough to reach mid-level and senior leadership positions – which could seriously impact an organisations' business performance. “The problem is not the lack of female talent, rather the leaky pipeline whereby women drop out at senior levels at disproportionate numbers. This is our greatest challenge – not losing such a valuable group of people on the way to the top,” Marianne Roux from Mercer said.

 

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