Want a safe bet? Try investing in a company with women on board

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Companies with at least one female director on board are 20 per cent less likely to go bust. And even less likely if they have two or more women on board.

Such female-friendly companies also tend to be more stable – no bad thing given the financial turmoil of recent years. They may not experience the investment highs that companies run by the more risk-taking type of man do when the share market is hot. But they don’t suffer the big falls either.

According to a recent report on Gender Diversity, by Swiss bank and finance group Credit Suisse, women are more risk-averse than men and having them on board is good news for companies – and investors.

The report covered six years, from 2005 to 2011, crucially, including the 2008 global financial crisis. Nearly 2,400 companies from around the world were assessed. The report was published late last year.

So, why are women board members good for companies – and investors?

The report sums it up in seven points:

  • Companies with women on the board tend to be good companies and doing well anyway.
  • Gender diversity makes for better performance. With wider input, decisions are more likely to be right, partly because people behave better in front of “strangers”. (Presumably, this is a way of saying people pull their socks up when the board isn’t just an Old Boys’ Club) The different voices in board discussions see a board’s collective IQ rise.
  • You also get a better mix of leadership skills with both men and women on board. Mixed boards are like space missions where the presence of female astronauts made for a “calmer mission” – and less rudeness too.
  • Taking women on board gives a company access to a wider pool of talent, particularly with younger age groups. (The number of male and female graduates reached parity in the 1980s.)
  • Women make most of the household spending decisions, so companies need them to understand consumer preferences. Not surprisingly, consumer companies tend to have more women on the boards.
  • Better corporate governance, or company behaviour – there is strong evidence women are very good at enforcing honest behaviour. However, while this is great for improving weak companies, strong firms can suffer from over-monitoring, which can reduce profits.
  • Women are more risk-averse than men. Having at least one woman on a company’s board means a company is 20 per cent less likely to go under. Risk often equates with a company having more debt, and while this can mean a company underperforms in robust economic times the cautious approach is generally good for companies and shareholders.

Of course, some types of companies – industrial and materials firms – tend to be very much boys only, so the ‘women on board’ approach to investment is more applicable to, for example, health and consumer-focused companies.

And then there is the issue of deciding when it might be worth taking a punt. Today’s New Zealand example here could be Xero, the online accounting software specialist. It is a bit of a darling right now.

Well, Warren Buffet, who is regarded as perhaps the world’s greatest investor, has a sensible view here – one that also chimes with the Gender Diversity report.

He says, buy into a “wonderful business” and don’t try to time the market (buy when shares are rising and sell when they are falling).

Buffet thinks such ‘timing’ is terribly dangerous.

“[But] with a wonderful business, you can figure out what will happen,” he says. “You can’t figure out when it will happen. You don’t want to focus on when, you want to focus on what. If you’re right about what, you don’t have to worry about when.”

So, if having women on the board makes for good business, then these companies are well worth looking at.

But what about Xero? Figure out if you think it is “a wonderful business”. And perhaps find out how many women it has on its board.

 Disclaimer

Johanna is a financial and technology journalist who thinks women need to know more about the Big Picture when it comes to money. Her Kate & Whio blog is intended to help and to educate, but the information contained in it should not be taken as specific financial advice. You are responsible for your own money decisions.

 

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