Having women on company boards leads to better financial performance

Although women make up about 12 % of senior management, women on boards increase company profits.

Published in Issues of Economics, the study by Associate Professor of the Department of Finance and Accounting at SPbU Tatiana Garanina and Associate Professor Aleksandr Muraviev at Higher School of Economics analyses over 500 public non-financial companies that sold shares in the stock market from 1998 to 2014.

In 32% of companies, there is at least one women in senior management, while in 40% of companies there is none, experts revealed.

Interestingly, women more often become the member of the board of directors in the Central, North-Caucasian, and Far East federal regions. The least women in executive roles has metallurgical industry, engineering, mining, and chemical industry, while such spheres as service business and trade have more women on company boards.

“The average age of women in senior positions is 41, while the average age of men is 46, — said Tatiana Garanina. — In 99 % of cases, they are Russian, while men are more likely to be foreigners. Unlike men, women are less likely to work as an insider in the top management positions and have little, if any, experience in corporate boards in other companies”.

There are companies with two and even three women on boards. Yet these companies make up only 16% and 7% respectively. The less the company is, the fewer chances are to have.

There is a concept of “tipping point” according to which there is a minimum of female board members in terms of influence on which is reflected in financial performance.

SPbU Associate Professor of the Department of Finance and Accounting Tatiana Garanina

“In Russia, having three women on corporate board represent the tipping point. The average size of the corporate board is 10 representatives, having 3 women is a threshold value of 33%. Female board members appear to have more of a positive impact on company profits and experience gains in return on equity”, — said the expert.

Yet the researchers warn against thinking that it is all about correlations between female board members and financial success. In 2003, Norway adopted a law which introduced quotas as to the number of women board members that is 40%. As a result, as Tatiana Gagarina explains, many companies experienced worse financial performance as the companies started to include female representatives merely to have them on boards.

In Russia, there are still no regulations that would introduce quotas as to the woman representation on boards. The only thing is Code of Corporate Management, but it is advisory in nature and it has no reference to gender: “The corporate boards should be balanced in terms of qualification of its members, their experience, expertise, business skills, and trusted by the shareholders”.

“Yet the relationship between female representation and financial performance is difficult to prove: there is some evidence that women are less likely to taking risks and bring more of a positive dynamic, — said SPbU Associate Professor. — We therefore want to understand what women have influence, what experience and expertise they have”.