Women in the boardroom: Diversity matters

The principle is simple—diversity matters to business. But despite the focus on gender diversity and inclusion, efforts promoting them have had limited success, and diversity improvements remain incremental.

Numerous academic studies have declared that groups with more diverse compositions tend to be more innovative and make better decisions.

And, according to research provider MSCI, having at least three women on the board seems to be the magic number, being a “tipping point” reflected in financial performance. In 2016, MSCI analysed US companies over a five year period.

Companies that began the period with at least three women on the board experienced median gains in return on equity (ROE) of 10 percentage points and earnings per share (EPS) of 37%.

In contrast, companies that began the period without any female directors experienced median changes of -1 percentage point in ROE and -8% in EPS over the study period.

“Such superior performance from companies with at least three female board members may derive from better decision-making by a more diverse group of directors, as some studies hypothesise. But 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,” says the report.

"Law schools, in-house legal departments and law firms must come together to implement practical solutions to attack the problem from multiple angles." - Survey respondent

The previous year, MSCI found that companies lacking board diversity suffered more governance related controversies than average, despite not finding strong evidence that having more women in board positions indicates greater risk-aversion.

Aside from the financial benefits, it’s clear that executives think diversity is a good thing.

According to a recent study by consultancy and recruitment firm Egon Zehnder, 87% of 2,500 executives across seven countries believe that having a diverse workplace was important to the success of their organization.

Charlie Beasley, a consultant at Egon Zehnder, adds: “Law firms cannot sit on the sidelines in the discussion around diversity and inclusion—in an increasingly disruptive and competitive legal market, clients are looking to partner with law firms that can bring the different perspectives and innovative solutions that diverse and inclusive teams are bestplaced to deliver.”