Impact Blog
Tipping the scales of corporate profitability with gender-diverse boards

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

      Washington - Published research links board diversity to increased corporate profitability, but a key question for investors is how much diversity is required to make a financially material difference to companies.

      In research we conducted in 2019, we sought to discover how many women are needed on boards to achieve this profitability "tipping point." We found that U.S. large-cap companies with at least four women on their boards outperformed those with fewer than four. This is an increase from a 2016 study by MSCI,1 which used a different methodology and placed the number at three.

      For the U.S. small-cap equity market and non-U.S. equity markets, the tipping point remains two women on corporate boards. However, we expect this number for U.S. small cap companies to increase, likely due to both regulatory changes in states like California, and investor influence through engagement and proxy voting.

      The gap of board-level gender diversity between developed markets and emerging markets is huge — two-thirds of the companies in developed markets have more than 20% of women on corporate boards, while less than one-third of emerging-market companies are at that level. In terms of the percentage of female board members needed to achieve a tipping point, our research showed it as 30% for U.S. large-cap companies and 20% for U.S. small-cap companies and emerging markets. For the developed markets index overall, the group with at least 40% women on their boards performed best, led by European companies.

      Bringing global influence to bear

      As discussed, gender diversity factors vary broadly around the world. The exhibit below displays the median number of female board members among the countries included in the MSCI AC World Index.


      The impact of increasing government regulations and investor actions is playing a critical role in increasing the number of women on corporate boards. For example, as part of the European Commission's Strategic engagement for gender equality,2 some jurisdictions set mandatory requirements or quantitative targets on female board representation, which has exerted a direct positive influence in recent years.

      France, which ranks highest by both the number and percentage of female board members, introduced a legislative quota in 2011 requiring companies to meet a 40% standard for each gender at the board level by January 2017. In the U.S., larger investors have used proxy voting to take strong policy stands on board diversity, improving female board representation among U.S. public companies since 2016.

      Bottom line: Our research showed that tipping points for board diversity varied by region and company size. For U.S. large-cap companies, boards with at least four women outperformed those with fewer than four. For the U.S. small-cap equity market and non-U.S. equity markets, the tipping point remains two women on corporate boards.