Yes, there are still many of them.
Diversity programs, meanwhile, have come under the microscope. In the U.S., the Supreme Court last year ruled that consideration of race in university admissions is not a compelling state interest, overturning 50 years of precedent on affirmative action in higher education.
Though the ruling did not address initiatives by private employers to advance diversity in the workplace —corporate programs to promote diversity, equity and inclusion (DEI) remain lawful — it has sparked scrutiny of such efforts.
In this context, it’s instructive to see that last year, men held nearly three-quarters of total board seats at large- and mid-cap companies throughout the world, down roughly a percentage point from 2022, according to the latest annual edition of MSCI’s “Women on Boards” report.
Men are more highly represented at companies in emerging markets (82.9%) than at peer companies in developed-market economies (67.1%).
Our analysis shows that on their current trajectory, women are projected to hold 30% of board seats in 2026 and reach 50% by 2040 – the latter two years later than we projected last year – due to a slowdown in the year-over-year increase in the growth of women directors.
We have been reporting on the representation of women on boards annually since 2009. The question is why. Loyal readers have expressed different reasons. One is regulation: to assess companies’ readiness for regulations in the European Union, Japan and the U.K. that mandate more representation of women on boards. Other readers focus societywide: They want to understand how well the leadership ranks of the world’s companies reflect the gender (and ethnic) makeup of the societies in which they operate.
For investors who look through a fiduciary lens, tracking women on boards is a window into whether the boards of their portfolio companies possess the range of perspectives and experiences needed to exercise oversight of management. A long history of academic research has demonstrated that more diverse teams can make better decisions.[1]
Gender diversity, however, offers only one narrow dimension of diversity. As a measure, counting men and women on corporate boards has the advantage of being the most widely available, consistent and robust data across thousands of companies and dozens of markets.[2] As comparison, data for another important yet narrow dimension of diversity – ethnic and racial diversity – is available for only a tiny fraction of companies and incomparable across markets.[3]
Cognitive diversity
Even less widely available and consistently measured is cognitive diversity, which is what most investors are interested in, or at least should be. In a recent paper by Alex Edmans, Caroline Flammer and Simon Glossner, the authors were able to measure a more multifaceted, comprehensive view of DEI, but only for approximately 126 U.S. companies per year through special-permission access to a proprietary survey of self-selected companies.[4]
The narrow lens on cognitive diversity provided by measuring only gender differences could be one reason that findings on the link to firm performance have been mixed. When looking holistically at DEI for the small set of companies that provided granular, proprietary information on their workforce, Edmans, Flammer and Glossner found that their specific measure of DEI correlated positively with key measures of future profitability and innovation, yet no link between DEI and risk-adjusted stock returns.[5]
And while industry studies have found a positive link between gender diversity and firm performance, academic meta studies in the past (conducted in 2015) have cast doubt on such a linkage.[6] Professor Katherine Klein summed up the results: “Rigorous, peer-reviewed studies suggest that companies do not perform better when they have women on the board. Nor do they perform worse.”[7]
What now?
If the presence of more women on corporate boards has not directly translated to better firm performance, what does that mean for the converse? Do we have evidence that appointing another male director has led to corporate outperformance? If not, should we continue such a prevalent practice?
As companies navigate an ever-increasing set of new threats and opportunities – from artificial intelligence to geopolitical risks and climate change – a diversity of perspectives and capabilities in leadership ranks will become even more critical to long-term competitiveness.
Gender diversity can provide one facet of that perspective. It is neither the only way to produce cognitive diversity nor a guarantee that such diversity is present, but it remains one of the most accessible measures we have.
[1] See, for example, “The Influence of Top Management Team Heterogeneity on Firms’ Competitive Moves,” Donald C. Hambrick, Theresa Seung Cho, and Ming-Jer Chen, Administrative Science Quarterly, Vol. 41, No. 4, Dec. 1996.
[2] MSCI ESG Research’s governance data covers more than 96,000 directors on the boards of 10,795 companies, as of Feb. 20, 2024.
[3] MSCI ESG Research has identified 23 constituents of the MSCI ACWI Index that have disclosed ethnic data at the board level under the U.K.’s listing rules, and 451 U.S-based companies that have disclosed the ethnic and racial makeup of their boards, leadership or workforce for the 2022 fiscal year, based on the data available as of October 2023.
[4] “Diversity, Equity, and Inclusion,” Alex Edmans, Caroline Flammer and Simon Glossner, European Corporate Governance Institute – Finance Working Paper No. 913/2023, Aug. 22, 2023.
[5] It is important to note that while our discussion focuses on diversity, Edmans, Flammer and Glossner have a broader focus that incorporates measures of equity and inclusion, in addition to diversity.
[6] For academic studies, see “Does Gender Matter? Female Representation on Corporate Boards and Firm Financial Performance – A Meta-Analysis,” Jan Luca Pletzer et al., PLoS ONE 10(6): e0130005, June 18, 2015, and “Women on Boards and Firm Financial Performance: A Meta-Analysis,” Corinne Post and Kris Byron, The Academy of Management Journal, Vol. 58, No. 5 (October 2015). For examples of industry studies, see the oft-cited 2020 study by McKinsey, “Diversity wins – How inclusion matters,” McKinsey & Company, May 2020, and a recent study by BlackRock, “Lifting financial performance by investing in women,” November 2023.
[7] “Does Gender Diversity on Boards Really Boost Company Performance?” Katherine Klein, Knowledge at Wharton, May 18, 2017
