Gender diversity leads to better return on equity among companies, a study by the Institute of Corporate Directors shows.
The study on board diversity found that publicly-listed Philippine companies with women directors outperformed companies purely held by male directors. It says board diversity fosters varied perspectives for better decision-making especially during challenges.
“As business trends and demands continuously evolve over time, newer board directors might have just as much expertise to offer as their longer-serving counterparts. Relatively fresh and dynamic beliefs and principles held by the newer ones can also help in improving ROE as the traditional ones long-held by the more senior,” said outgoing ICD board diversity and inclusion committee chair Helen de Guzman.
Based on statistical tests done, age and average ROE are significantly and directly-related. This means that as average ages go up, ROE tends to rise too.
The study indicates that in terms of diversity in board directors’ expertise, companies that performed significantly better than their counterparts are those that have non-executive directors and directors who are experts in business management and finance.
“In continuing the Philippine study, we will be looking at adding more dimensions as well as other metrics to measure company performance to better understand the correlation of diversity and inclusion on a business’ success,” said ICD board diversity and onclusion committee incoming chair Monette Iturralde-Hamlin.
It says to be competitive and responsive to the challenging economic and social trends, board diversity enables inclusion of different perspectives and ideas that can improve informed decision-making, oversight and governance.
The study reviewed all active PLCs registered with the Securities and Exchange Commission from 2019 to 2021. It was conducted to determine if there are relationships between various local PLCs’ board attributes and their respective company performance in terms of ROE.
“At the end of the day, diversity just for diversity’s sake is not enough. Boards should also look into and prioritize inclusion,” said ICD vice chair and president Boots Geotina-Garcia.