Effective corporate governance is essential for company growth. The board's ability to adopt effective decisions and strategies depends on the directors' professional skills and experience, but also on personal characteristics, such as a willingness to take risks and an ability to keep calm in stressful situations, make fast decisions, impress business partners and inspire employees.
It is believed that diversity of the board, including gender diversity, benefits a company by providing different perspectives on its strategy, and also enhances its reputation and attracts investors.
Ratnikova, Senior Research Fellow of the HSE's Laboratory for Macro-Structural Modeling of the Russian Economy, and Gavrilov, master's student of the HSE's Strategic Corporate Finance programme, examined how women in the boardroom can influence a company's performance using panel data from Bloomberg and Amadeus on gender diversity and financial performance of 378 European non-financial companies with a market capitalization of more than $300 million between 2007 and 2012.
Over the last twenty years, the number of women on the boards of directors of the world's biggest companies has increased, with the average number of women on the boards of the S&P 500 companies almost two, while the proportion of women in the boardrooms of the largest companies in the euro area averaged 17.8% as of October 2013.
Developing countries share this trend, although they still fall behind in absolute terms. Thus, according to GMI's rating as of April 2013, the share of women on corporate boards averaged 5.1% in Brazil, 8.8% in China, 4.8% in Russia, and 6.5% in India. China is the only BRICS country where 50% of the surveyed companies have women on their boards.
A number of factors, such as legally established quotas and global demographic and social trends, are contributing to an increasing presence of women in the boardroom. 22 countries have established quotas for women on boards of directors; in Norway, the quota is 40%. There are legal requirements in India and Malaysia to include women on the boards of public companies, while in South Africa, Kenya and the United Arab Emirates women must be represented on the boards of companies with state ownership.
However, a deeper regression analysis reveals the opposite – i.e. that women in the boardroom improve their company's strategic performance. According to Ratnikova, the proportion and number of women directors has a nonlinear impact on the company's revenue and asset growth.
She found that a company's performance tends to improve with more women on the board, but only up to a certain point, and then it begins to decline. Ratnikova and Gavrilov attribute this effect to specific characteristics of many women directors – in particular, their higher levels of education and, paradoxically, higher risk appetites compared to men, which allows women to come up with innovative strategies both in times of rapid growth and in times of crisis.
It is no coincidence that the study found a clearly positive impact from women's representation on corporate boards between 2007 and 2012, when many companies were affected by the financial crisis.
However, at quieter times when a company needs to do routine work instead of firefighting, women tend to be less effective than men. "According to statistics, women directors are less likely than their male peers to have family and are also less likely (perhaps due to their lifestyle) to adopt conformist attitudes and traditional management styles. These characteristics may be associated to some extent with their nonlinear impact on the company's performance," according to Ratnikova.
The study's authors also suggest that some women directors may be burdened by an excessive sense of responsibility and thus overwhelmed from trying to address all aspects of their company's operation at once.
Overall, the study found no correlation between concentration of capital and a company's revenue growth, yet Ratnikova notes that higher ownership concentration combined with an increase in the number of women directors tends to negatively affect strategic performance – perhaps due to a loss in managerial flexibility.