The extra X factor

Why women in the C-Suite are good for business

The year 2011 will go down as a great year in the progress of women to top executive ranks in Canada. With the recent leadership victory of Alison Redford, the province of Alberta will soon have a female premier, bringing the total number of female premiers to four out of 10. Currently, British Columbia has Premier Christy Clark; Newfoundland and Labrador have Premier Kathy Dunderdale; and Premier Eva Aariak is in charge of Nunavut.

Meanwhile, in Corporate Canada, financial services are typically huge holdouts of male-dominated ranks. On average, only one-third of bank board members in Canada are women. However, HSBC Bank Canada (LSE:HSBA), Toronto-Dominion Bank (TSX: TD) and Royal Bank of Canada (TSX: RY) have all recently appointed more women to their boards.

Why do we need more women?

If women are equal members of society and not to be regarded as “token appointments”, what difference does it make how many women or men are on a company’s board? According to statistics from research company Catalyst Inc., women can make a huge difference to a company’s bottom line.

Public companies are typically evaluated on three measures: Return on Equity, Return on Sales and Return on Invested Capital. Consider the following statistics from Catalyst, which are applicable to companies across all industries, including consumer discretionary, consumer staples, financial, healthcare, industrials, technology and materials.

Return on Equity (ROE)

This measures how much money the company is generating versus how much money shareholders have invested (also known as equity). ROE is used to gauge a company’s efficiency – in other words, for every dollar invested by a shareholder, how much profit is being produced? As a rule of thumb, 15 – 20 percent is regarded as a decent ROE. The extra X factor: On average, companies with the most women on board outperformed those with the least women by 53 percent in terms of ROE.

Return on Sales (ROS)

This is also known as “operating margin” and is a way to measure how much profit the company is making on each unit of sales. Basically, take the profits and divide them by the company’s revenue or sales. The higher the return on sales, the more financially stable a company is, having enough revenue left to pay for fixed costs and make any debt payments. The extra X factor: On average, companies with the most women on their boards outperformed those with the least women by 42 percent in terms of ROS.

Return on Invested Capital (ROIC)

This is a way to see how much cash flow the company is generating given the level of capital that has been invested. You take the profit, subtract out any taxes, and then divide by how much money is invested through bonds, shares or other securities. With a strong ROIC, investors can be sure the company is creating value. The extra X factor: On average, companies with the most women on board outperformed those with the least women by 66 percent in terms of ROIC.

The power of three

While boards and governments in Canada and beyond struggle to achieve equal representation for women, there does seem to be a minimum threshold at which having more women begins to pay off. The magic number? Three. According to Catalyst, stronger than average financial results prevail at companies where at least three women serve on the board.

That thing we do

What is it that women bring to boards to make them more financially successful? According to LouAnn Lofton, author of Warren Buffett Invests Like a Girl, female investors tend to do more methodical research, make fewer assumptions about what they know, ask more questions and are more likely to remain committed to a long-term investment strategy.

Ilene H. Lang, president of Catalyst says, “We know that diversity, well managed, produces better results. And smart companies appreciate that diversifying their boards with women can lead to more independence, innovation and good governance and maximize their company’s performance.”

The power of you

So what can you do to help get more women on boards and in government? It starts with your vote. A company is owned by its shareholders and if you are a shareholder of a company, you have a say. Pay attention to the Annual General Meetings at which board members are nominated and elected. When it comes to your government, whether federal, provincial or civic – it’s up to you to get involved in the political process. The more female candidates we have, the more choices we will have for great female political leadership. So step up, sister, it’s up to you.

 

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