Top women tip the scales

Why do companies with more women at senior level tend to outperform rivals? Evidence of a link between the bottom line and women at the top is growing, with McKinsey research released on Thursday showing better-than-average financial performance by European companies with the highest proportion of women in influential leadership roles.

The report, launched at the Women’s Forum for the Economy & Society in Deauville, France, finds these companies do better than their sector in terms of return on equity, operating result and share price growth.

The management consulting firm also reports that companies around the world where a third or more of the senior team are women score higher, on average, than those with no women on nine criteria of “organisational excellence”. These criteria include accountability, innovation and work environment.

The McKinsey study comes hard on the heels of US boardroom research showing that Fortune 500 companies with the highest proportion of female directors are more profitable and efficient, on average, than those with the lowest.

The greatest out-performers are companies with three or more women on the board, according to the study by Catalyst, the US research body. They show an 83 per cent higher average return on equity, 73 per cent higher return on sales, and 112 per cent higher return on invested capital.

“Clearly something is going on,” says Debbie Soon, vice-president of Catalyst’s executive leadership initiatives. “Most of the companies with zero women were in the bottom performance quartile.” Three years ago, Catalyst demonstrated a similar link between profitability and women in senior management.

Both McKinsey and Catalyst note that these correlations do not necessarily mean senior women cause superior financial performance. There is qualitative research and anecdotal evidence, however, that points to changes in behaviour and environment when the gender balance improves significantly.

A sole woman on a board often feels marginalised, according to research reported in Harvard Business Review last December. The appointment of a second woman can help reduce this isolation but can also create difficulties: two women may have to be careful not to be seen as “conspiring”, said researchers Alison Konrad and Vicki Kramer, who interviewed 50 women directors, 12 chief executives and seven corporate secretaries at Fortune 1000 companies.

A “clear shift” occurs when there are three or more women, they found. The women tend to be seen just as directors, rather than female directors, the boardroom dynamic becomes more collaborative and the discussions richer and more informative.

Other qualitative research, including interviews with FTSE female directors by Cranfield School of Management’s International Centre for Women Business Leaders, suggests there is less stereotyping, a broader perspective, and a friendlier atmosphere when there is more than one woman on the board.

Eric Daniels, chief executive of Lloyds TSB, the UK bank, is unusual in presiding over a management committee where half of the directors are women. He stresses they were chosen because they were the best people for the job.

“I’d call [the gender balance] more of an accident than a conscious organisational design around gender,” he says.

He disputes the suggestion that the presence of women creates a more supportive environment, but says everyone feels free to challenge each other in an egalitarian way. As more women have been appointed, the team’s dialogue and dynamic has improved, he says. “I think it has more to do with the quality of the women than the fact they are women.”

Sir Rob Margetts, chairman of Legal & General, the UK financial services group which currently has two women directors, says boards should strive to go beyond the “token” woman. “The ‘one’ struggles to fit the behaviour and patterns . . . and is treated as an honorary man,” he says. “Two or more give mutual psychological support and start to change the culture and behaviour.”

Sir Rob is also senior independent director at Anglo American, the mining group, which has two women on the board, including chief executive Cynthia Carroll. He mentors senior women in the FTSE 100 Cross-Company Mentoring Programme.

He believes the correlation between senior women and financial performance is at least partly due to successful companies having positive, open cultures. “It’s the best qualities of management: they want diversity, they want listening, supportive cultures, and women are very good for teamwork.”

Ms Soon argues that companies do not achieve a critical mass of women at the top by accident but by making an “extraordinary effort” through their search or promotion processes.

Does it matter whether superior financial performance is directly caused by having more women at the top or by having an open, innovative corporate culture? Probably not, she says, since one is indicative of the other.

“To take advantage of the rich talent that’s available is the best thing that a corporation could do.”

Areva chief named Europe’s top businesswoman after a strong performance

Anne Lauvergeon, chief executive of Areva, the French nuclear group, has been named Europe’s top businesswoman in the Financial Times’s annual ranking, write Andrew Hill and Joanna Chung.

Ms Lauvergeon displaces Ana Patricia Botín, executive chairman of Spanish bank Banesto, who headed the ranking in 2005 and 2006 and dropped to number four this year. The Areva chief, ranked second last year, has earned a strong reputation at the state-owned nuclear company, where she faces both political and commercial pressures.

There were seven new entrants in this year’s top 25, including Cynthia Carroll, Patricia Russo and Monika Ribar, who in the past year have taken the top executive jobs at, respectively, Anglo American, the mining group, Alcatel-Lucent, the telecoms company, and Panalpina, the Swiss logistics and transport group.

The ranking, compiled with Egon Zehnder, the executive search consultancy, and FT Deutschland, is based on a blend of data about the size, growth and (where relevant) share price performance of the candidates’ companies, adjusted according to their level of responsibility, recent record and perceived potential.

The inclusion of Ms Carroll and Ms Russo presented challenges in how they should be ranked. Ms Carroll took on the CEO job at Anglo American only this year – a surprise outside appointment from Alcan – and the jury is still out on her impact.

Ms Russo is facing pressures as leader of Alcatel-Lucent, which has issued three profit warnings in 10 months. Other new entrants were Angela Ahrendts, chief executive of Burberry, Catherine Kinney, president of NYSE Euronext, Dominique Reiniche, Coca-Cola’s European Union group president, and Anne-Marie Idrac, who chairs the French railways group SNCF. Employees of Pearson were ineligible.

Research: Anne-Britt Dullforce, Neil McDonald, Hannah Green