MORE THAN A “1 PERCENTER” - BOARD DIVERSITY AND FINANCIAL PERFORMANCE

Over the last few weeks I’ve spent time interviewing four amazingly talented individuals, asking about their experience working on and with the boards of sport organisations. These boards ranged from State Sport Associations (SSAs) to AFL Clubs and National Sport Organisations.

Despite the differences in background, industry, position and gender (for the record, I spoke with two men and two women), one point was consistently reinforced – a diverse board is good for business. In a previous article we looked at the positive impact of board diversity on risk management, but the burning question remains – What impact can board diversity have on the bottom line? Or as Jerry McGuire would say “Show Me the Money!”

Research clearly confirms the positive correlation of board diversity with the financial performance or an organisation. Consider the following snapshot:

• An analysis of ASX500 companies over a three and five year timeframe found that companies with female representation on their board outperformed companies with no gender diversity over both time periods – 6.7% return on equity over three years and 8.7% over five years.[1]
• A Catalyst study of Fortune 500 companies found that those with sustained high representation of female directors (three or more women in at least 4 of 5 years) significantly outperformed those with sustained low representation with a 46% return on equity.[2]
• Similarly, a Chicago United study showed that diverse boards correlated with higher profitability; the average return on equity being 25% compared to 9% for those with a uniform board[3]
• Credit Suisse analysed more than 2,500 companies and found that those with more than one woman on the board have outperformed those with no women on the board by 26% since 2005[4]
• Companies with a higher representation of women in decision making positions perform better than those with more homogenous leadership.[5]
• Women are far underutilised as directors in nearly every market, despite the fiscal and cultural benefits to having them in leadership roles.[6]

So what does all this mean? First and foremost it highlights that diverse boards have a positive impact on an organisations financial performance. Couple this with the improved risk management outcomes previously discussed and it’s obvious why business is beginning their embrace of diversity on boards, in leadership, decision making positions.

But beware – one or two women on a board does not guarantee these outcomes. The board and organisation as a whole have to truly believe in the importance of diversity. It requires commitment, culture change, a critical mass of women in board positions and most importantly, action.

In sport, we continually search for the extra 1% that gives us an advantage against our opposition. Diversity on boards can bring more than a 1% advantage, yet many sport organisations continue to ignore it or place diversity in the “Too Hard Basket” despite their best intentions. We’ve talked the talk about diversity at all levels for too long. It’s time to walk the walk – are you on board?

Fiona Jones - Sports Consultant

[1] ‘ASX500 – Women Leaders: Research Note’, Reibey Institute, June 2011

[2] ‘The Bottom Line: Corporate Performance and Women’s Representation on Boards (2004-2008)’, Catalyst, 2011

[3] Chicago United in ‘High Achievers: Recognising the power of women to spur business and economic growth’, Ernst & Young, 2013

[4] ‘Gender diversity and corporate performance’ Credit Suisse, 2012

[5] ‘In their own words: Women in Leadership’, Ernst & Young, 2012

[6] ‘The Diversity Scorecard: Measuring board composition in Asia Pacific’, The Korn/Ferry Institute,  2012

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