Women on boards of directors boost returns: CIBC

Having women on a company’s board of directors leads to better stock market returns and that’s information institutional investors can use when deploying their portfolio strategies, a new report prepared by CIBC World suggests.

Based on CIBC’s data over an eight-year period, S&P/TSX companies with women on the board “produced an annual 11.1 per cent compounded return, more than 300 bps (basis points) of outperformance compared to the zero-female board member groups,” the report declares.

“Board selection committees and investors in Canadian companies have to be aware that having female board members generally equates to better stock performance,” said CIBC managing director Ian de Verteuil and associate Shaz Merwat, the report’s authors.

Canadian investors and other stakeholders, however, need to push for more female representation on corporate boards to even reach diversity levels evident in other jurisdictions, such as the United States, says the report, titled The Harsh Truth.

This “holds true as a whole, but is astoundingly visible when looked at on a sector basis,” the authors wrote. They note that at least 20 per cent of Canadian, tech, and energy companies have no women on their boards.

De Verteuil and his co-author acknowledge that factors such as systemic bias and a limited pool of candidates could be contributing to the low representation of women on boards in certain sectors. But their report finds Canadian companies lag “well behind” similar firms in the United States. There, the sector with the lowest level of female representation in the S&P500 is energy, where only five per cent of companies have no female board members.

Board diversity has become a hot topic in corporate governance circles in recent years, and de Verteuil says it is increasingly on the agenda of institutional investors, who factor it into investment decisions alongside issues such as carbon footprints, water usage and more general corporate governance.

“More stakeholders are asking their money managers to provide clear perspectives on these issues,” de Verteuil said, adding that their interest is evident through the increase of shareholder resolutions on both sides of the Canada-U.S. border.