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Women in boardrooms: Fair and profitable

Female participation in corporate boardrooms is improving, albeit slowly. However, the absence of women on corporate boards and in other high-level positions could signal a weaker business outlook for many companies.

Diversity in its many forms helps foster better decision making within organizations. Having too many of the same types of people gathered in groups to make decisions can easily result in groupthink, which can endanger a robust business process. (In other words, just say no to the yes-men.)

A 2009 survey conducted by Catalyst, a non-profit advocate for females in the workplace, showed that between 2005 and 2009, Fortune 500 companies with three or more female directors outperformed firms with fewer women on their boards; the average return on equity was in fact 43% better.

Regardless, many corporations and their shareholders haven’t quite gotten the message that this isn’t just about fairness; it makes real business sense.

GMI Ratings’ Nathaniel Flannery recently called out 10 global companies with zero women on their boards. Big names included Under Armour (NYSE: UA), Fiat, Samsung, and Anheuser-Busch InBev (NYSE: BUD).

Furthermore, there’s something ridiculous about companies that appeal strongly to female demographics lacking female perspective on their boards. Last year, companies with major female demographics, like Urban Outfitters (Nasdaq: URBN) , and Crocs (Nasdaq: CROX) , were all called out for having no women on their boards. Crocs has since added one female board member.

You’d think a young social media company wouldn’t be backward and antisocial, but think again. Plentiful red flags wave around Facebook’s IPO, and one of them is the lack of women on its board of directors.

This comes across as weirdly anachronistic for such a young company. It also seems odd because Facebook Chief Operating Officer Sheryl Sandberg has an extremely impressive resume and is far more seasoned than youthful CEO Mark Zuckerberg. In the demographic sense, 58% of Facebook users are female. Um, hello?

Here in Australia, only 10.9% of directorship positions in ASX200 companies were held by women, and 87 still do not have a woman on their board, according to the Boardroom Diversity Index published by advocacy and support organisation, Women On Boards.

Studies also show that women tend to be less likely to take dangerous risks or be overconfident. They’re also more patient and less layoff-happy than their male co-workers. Layoffs are the perfect example of our current problem with short-term mentality. Over the long haul, cultures that too easily cut workforces can ruin your investing future.

In other words, female progress in boardrooms isn’t just a social or political “thing” – it should result in more stable, dependable profits and stronger companies over the very long haul. When companies lack the valuable asset of female participation in boards and other leadership roles, they could become the most lacklustre components of your portfolio.

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The Motley Fool’s purpose is to educate, amuse and enrich investors.  This article contains general investment advice only (under AFSL 400691).

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