Fe­male-led firms out­per­form­ing

Stock re­turns for such com­pa­nies were far bet­ter than a ma­jor in­dex, anal­y­sis shows.

Los Angeles Times - - WORK LIFE - By Jena McGre­gor McGre­gor writes a col­umn an­a­lyz­ing lead­er­ship in the news for the Wash­ing­ton Post.

In re­cent years, some fi­nan­cial ser­vices com­pa­nies have been adding in­vest­ment prod­ucts that place bets on fe­male-led firms, in­vest­ing in com­pa­nies that have ei­ther women as chief ex­ec­u­tives or di­verse boards of di­rec­tors. New re­search from Scan­di­navia’s largest bank shows why the wa­ger might be a good one.

Com­pa­nies with a fe­male CEO or chair­woman per­formed far bet­ter than a ma­jor global in­dex over the last eight years, ac­cord­ing to an anal­y­sis by the bank Nordea of nearly 11,000 com­pa­nies glob­ally.

The re­sults, first re­ported by Bloomberg, found that on av­er­age, com­pa­nies with a wo­man in ei­ther of those two top jobs at the end of the cal­en­dar year more than dou­bled the per­for­mance of the MSCI World In­dex in the fol­low­ing year. The an­nu­al­ized re­turn for fe­male-led firms, based on an equal weight­ing, was 25% since 2009, com­pared with 11% for the broader mar­ket.

“It’s not one year that’s do­ing the work,” said Robert Naess, a port­fo­lio man­ager at Nordea based in Ber­gen, Nor­way, who did the anal­y­sis. Over the eight years he stud­ied, he said in an in­ter­view, there was “only one year where they lagged the mar­ket.”

Naess’ study adds to a grow­ing body of re­search aimed at ex­am­in­ing whether gen­der diversity has an ef­fect on cor­po­rate per­for­mance. Some stud­ies show a link: Credit Suisse, for ex­am­ple, has found that hav­ing a wo­man on the board was as­so­ci­ated with bet­ter per­for­mance and that hav­ing more fe­male top man­agers was as­so­ci­ated with higher re­turns on eq­uity, val­u­a­tions and div­i­dend pay­outs, as well as bet­ter stock per­for­mance.

Other stud­ies, mean­while, have shown less clear links, with one show­ing the stock price of Nor­we­gian com­pa­nies dropped af­ter they added fe­male di­rec­tors to meet a man­date that 40% of the coun­try’s cor­po­rate boards be fe­male — the drop was at­trib­uted in part to less-ex­pe­ri­enced di­rec­tors.

Naess’ anal­y­sis ex­am­ined pub­licly traded com­pa­nies that had at least $2 mil­lion in stock trad­ing each year from both de­vel­oped and emerg­ing mar­kets. He looked at nearly 400 com­pa­nies over the pe­riod in which women held one of the two roles, ex­am­in­ing how the per­for­mance of the com­pany fared in the fol­low­ing year if a wo­man was CEO at the end of the year prior.

As the port­fo­lio co-man­ager for a $40-bil­lion fund that in­vests in “qual­ity” com­pa­nies with more sta­ble earn­ings and less volatile stocks, Naess sug­gested a few pos­si­ble ex­pla­na­tions for the find­ings. One is that for what­ever rea­son, women may tend to lead more of these less-volatile com­pa­nies. Ac­cord­ing to his data, about 4% of the com­pa­nies had a fe­male leader in the broader mar­ket, com­pared with 9% of com­pa­nies on an in­dex that tracks these more sta­ble firms.

An­other pos­si­bil­ity, he said, is that an­a­lysts tended to have slightly lower earn­ings growth ex­pec­ta­tions for the com­pa­nies in his data set with a wo­man at the helm — at an av­er­age of 7.4%, ver­sus 9.7% for the broader mar­ket. While the rea­son for that is un­clear, an­a­lysts over­shoot ex­pec­ta­tions fre­quently, he said. Be­cause the ac­tual av­er­age earn­ings growth is only about 5% a year, the women’s per­for­mance could be seen as less dis­ap­point­ing, which could lead to stronger stock per­for­mance.

In a fol­low-up email, Naess said the ex­pla­na­tion also could sim­ply be that the women were bet­ter man­agers. “The sim­ple in­ter­pre­ta­tion of my cal­cu­la­tions is to buy the com­pa­nies with a fe­male CEO/ chair,” he wrote.

Bryan Bed­der Getty Im­ages for the New York Times

THE AN­NU­AL­IZED re­turn for fe­male-led firms in the anal­y­sis was 25% since ’09, com­pared with 11% for the broader mar­ket. Above, Pep­siCo CEO In­dra Nooyi.

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