Impact Blog
Examining board gender diversity and equity market performance

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      By Yijia Chen, CFAESG Quantitative Research Analyst, Calvert Research and Management

      Washington — Do gender-diverse boards and executive teams really make a financially material difference to companies and capital markets? While numerous studies in recent years point to "yes," we decided to put these theories to the test, using rigorous quantitative factors. We examined the financial materiality of five distinct gender-diversity factors with relatively good data coverage. We looked at how these factors affected U.S. and non-U.S. equity markets and assessed diversity impacts, controlling company size (capitalization), country and sector.

      Some studies we examined showed that a more gender-diverse executive team has a stronger impact on company performance than the gender of the CEO.1 Other studies linked diverse boards and executive teams to better risk management and, in some cases, improved performance results.2,3,4To assess these claims, we conducted three-year backtests on the materiality of five factors:

      • Number of female board members
      • Percentage of female board members
      • Number of women in board leadership roles
      • Number of women named executive officers (NEOs)
      • TruValue circumstantial score related to diversity and inclusion news/issues5

      We found that gender-diversity factors show strong efficacy in equity returns for both U.S. and international markets. More specifically, for U.S. large-cap companies, the TruValue circumstantial score related to gender and inclusiveness news/issues was the major driver of superior equity performance. For U.S. small-cap companies and non-U.S. markets, board-level gender diversity was the driving performance factor.

      Across all sectors, the average number of women in board leadership roles and women NEOs is less than one, which implies that most companies do not put any women in the three-to-five most important company roles. While women's voices are starting to be heard on corporate boards, their opinions are not as influential in leadership teams.

      Other highlights include:

      • For U.S. large-cap companies, female representation in executive leadership roles (i.e., NEOs) is as important as representation on the board
      • From a sector perspective, energy is the laggard, with the lowest female representation on corporate boards and in executive leadership roles
      • On the other side, utilities is the leading sector, with the most women on corporate boards and in leadership roles

      Bottom line: On the whole, our comprehensive, backtested research confirms the findings of prior studies citing the impact of gender diversity on corporate financial performance. The research showed that gender diversity can have a significant impact on equity returns. The circumstantial score related to gender and inclusiveness news/issues is one of the major drivers of equity performance for U.S. large-cap companies, while board-level gender diversity helped drive results for U.S. small-cap companies and non-U.S. markets.