UNC Kenan-Flagler Business School


Wagner Study Shows Bottom Line Advantage of Women in the Boardroom


Gender diversity advocates have talked the talk. Now a study shows that diversity walks the walk.

“The Bottom Line: Corporate Performance and Women’s Representation on Boards,” released in October, indicates that Fortune 500 companies with a high percentage of women on boards of directors have better returns on equity, sales and invested capital as compared to companies with a small percentage or no women on boards.

The results are based on four-year averages of data from 520 companies from 2001 through 2004. The results show that businesses with the highest percentage of women on boards, compared with companies with the lowest percentage of women on boards, outperformed by 53 percent in return on equity, 42 percent in return on sales and 66 percent in return on invested capital.

Harvey Wagner, Kenan-Flagler professor in Operations, Technology and Innovation Management, or OTIM, was among the authors of the report, released by Catalyst Inc., a nonprofit based in New York that aims to increase opportunities for women and business. Sriram Narayanan, who teaches at Michigan State University, assisted with research as a doctoral student in OTIM.

“It’s the first time anyone has shown with public financial data that women on corporate boards make a difference to the bottom line,” Wagner says. “There’s quite an impressive difference” between companies with the most and least percentage of women on boards.

“Researchers with a serious interest in gender diversity in companies have found there are many of reasons why gender diversity is an important goal to seek. But executives wonder whether it’s so important that its impact on the bottom line can be substantiated. And the answer now is a definite ‘yes.’ The impact of gender diversity is so strong that you can pick it up from financial data reported annually,” Wagner says.

The study was a follow-up to a Catalyst study that focused on senior officers of about 350 companies from 1996 through 2000. Wagner was an adviser for the earlier study.

Compared with the context of the previous research, the most recent study took place during economic turbulence due to a new administration in Washington, D.C., a troubled economy, and layoffs and outsourcing by companies, Wagner says. “We previously saw gender diversity’s value in good times, and now we’ve seen it persist in not so good times.”

Despite the evidence in the Catalyst studies, some companies have no women on their boards.

“There must be leadership inside a board that recognizes gender diversity is relevant to the corporation’s financial success,” Wagner says. But the study may influence executives by indicating that “you can validate the financial importance of gender diversity. And hopefully by validating it, you get board members to support it by action.”

The research has had an impact on the media. Dozens of media outlets, including CNBC, CNNMoney, Forbes, Fortune and Financial Times, have done stories about the new study.