Earnings per share jump 37% with female board members – MSCI


US companies with at least three female board members enjoy significantly better return on equity and earnings per share than firms with all-male boards, research from MSCI finds.

The Tipping Point report, which analyses corporate data between 2011 and 2015, reveals three female board members resulted in median gains in ROE of 10 per cent and 37 per cent for EPS over the period.

In contrast, companies that had no female board members in 2011 suffered a median change in ROE of -1 per cent and EPS of -8 per cent.

Companies from the index without female board members are overwhelmingly from Asia with Toyota, Samsung and Tencent representing the largest by market cap. Brazilian bank Itau and Russia’s Gazprom also feature.

The report says that a “critical mass” is needed on the board in order for the benefits of gender diversity to come into effect and describes three female board members as the “tipping point”.

MSCI global head of ESG research Linda-Eling Lee says the superior performance could be due to better decision-making by a more diverse group of investors.

Five-year EPS by number of women directors


“Outperformance may also be tied to greater gender diversity among senior leadership and the rest of the workforce, which has been correlated with reduced turnover and higher employee engagement,” Lee adds.

A quarter of companies (24.8 per cent) in the MSCI ACWI Index have no female board members, while a similar amount, 27.4 per cent, have three or more women.

Globally women held 15.8 per cent of all directorships.

The Pax Ellevate Global Women’s Index fund, which launched in 2014, tracks around 400 constituents from the MSCI World Index based on gender diversity criteria.

According to Morningstar, the index fund has returned 4.2 per cent compared to 1.9 per cent in the benchmark for the year to date.

The largest holdings in the $106m fund include Microsoft and Yahoo, which account for 2.6 and 2 per cent respectively. Johnson & Johnson and American Water Works both account for 1.9 per cent, while Facebook rounds out the top five, accounting for 1.8 per cent.

Pax World senior vice president for sustainable investing Julie Gorte says it is striking that despite research demonstrating more diverse boards boosts companies’ financial performance progress in promoting women to boards is “glacial”.

Gorte adds that MSCI’s analytical work on the importance of having three or more women on boards is worth investors’ attention.

In 2014, Barclays launched the Women in Leadership ETN, while this year State Street launched the SDPR SSGA Gender Diversity Index ETF.

The MSCI research showed that developed markets have more than double the amount of female representation with 19.1 per cent of directorships held by women compared to 9 per cent in emerging markets.

Norway (39.4 per cent), France (37.6 per cent) and Sweden (35.6 per cent) had the highest percentage of board seats filled by women.