In a ten-year study of US Fortune 500 companies published in 2017, it was found that firms with female CEOs or gender-diverse boards are associated with a range of stronger business and equity practices, including diversity, corporate governance, product strengths and community engagement. Is this incidental, or is it an indication that having a diverse board indeed strengthens the performance of companies over time?
Soria Hay, head of Corporate Finance at Bravura, an investment banking firm specialising in corporate finance and structured solutions services, comments that in South Africa it may be a while before women are broadly able to make their presence felt at board level. “Although there have been amendments to the JSE listing requirements to include the promotion of gender diversity, women remain underrepresented at executive and board level in nearly all of our major companies,” says Hay. “Women make up just one fifth of the directors who serve on the boards of companies listed on the JSE. And the top 40 JSE-listed companies do not have a single female CEO, which is ironic given that the JSE’s CEO is a woman (Nicky Newton-King).”
Last year, research into 267 JSE-listed companies (there are 400 in total) found that only 10% of those sampled had achieved gender parity on their boards. The gender policies outlined in 105 integrated reports provided no opportunities for women to be appointed as directors, and 50 companies omitted gender policies from their integrated reports altogether.
Is there a correlation between boards with appropriate gender representation and good corporate governance?
A United Kingdom study on the social, environmental, corporate governance and financial responsibilities of FTSE 100 companies reported significant positive relationships between board gender diversity, overall corporate responsibility and individual elements of social and financial responsibility in Australia, research covering 151 listed companies found that women directors had a positive impact on the environmental and social responsiveness of their companies, partly due to the fact that they were skilled in problem-solving and dealing with complexity, which positively contributed to the establishment and management of complex stakeholder relationships.
Research from Norway, the first country in the world to adopt gender quotas in 2006, points to a direct relationship between gender diversity on boards and earnings manipulation. The research, conducted amongst Oslo’s listed companies in 2016, found that as female representation on boards increased, the issue of earnings management decreased.
Hay explains the detrimental effect of earnings manipulation: “Stakeholders make decisions based on the information provided to them by management. However, what if management were to manipulate numbers or information for their own agenda? This kind of manipulation is referred to as earnings management and can lead to biased information that could result in poor decisions having serious consequences for shareholders and company alike. Good governance ensures the alignment of shareholders and manager interests and thus reduces earnings manipulation.”
Hay says these findings provide valuable information when considering the benefits for introducing women onto boards. “Homogenous boards may operate less effectively than they might think. For instance, what researchers term ‘group-think’ can limit the board’s ability to adequately reflect or consider diverse viewpoints and differing shareholder needs. There may be a reduction of independent and critical thought. By contrast, articulating varied perspectives can decrease the pack mentality, facilitate creative approaches to resolving complex matters and encourage critique around convenient decisions.”
Read here: Women May 2019
Categories: Corporate Finance, Economy, News
Published: Financial Mail Women 2019