Sustainable value: Gender diversity on corporate boards

Katherine Collins, CFA, MTS

Katherine Collins, CFA, MTS
Head of Sustainable Investing, 05/28/20

  • Research shows that gender diversity on corporate boards is associated with higher financial returns.*
  • Our sustainable portfolios own more companies with a greater percentage of women board members than the average of the S&P 500 (as of December 2019).
  • We believe teams with diverse perspectives and experiences have stronger decision-making ability.

Diversity in companies — including gender diversity — can have a positive impact on company performance and strategic ability. It’s a key metric that we use when we consider corporate governance in companies we research.

We invest with the philosophy that companies that address key sustainability issues, including gender diversity, have the potential to add value over the long term. Companies that address diversity and gender equity may also improve corporate culture, management capacity, and value to shareholders over time.

Women add value on boards

Numerous studies of gender diversity have shown that diverse boards are typically associated with higher financial returns, higher firm value, higher profitability, increased investment in research and development, and lower volatility.*

We have seen an increasing recognition of the value of diversity in our research, with progress toward gender equity. The average board of the S&P 500, for example, saw representation among women rise to 25% in 2019 from 14% in 2008.

Gender diversity is also an important part of many of the United Nations Sustainable Development Goals (SDGs). The SDGs are a set of global priorities — a call to action — developed by countries, NGOs (non-governmental organizations), businesses, and stakeholders around the world. The goals serve as a guide for the long-term sustainability efforts of companies and investors, and as a mandate to address challenges facing the world.

For a deeper look at the importance of these metrics, see our 2020 “Sustainability and impact report.”

What does the data reveal?

In our research, we investigate the growing trend of women serving on corporate boards.

While most of the boards of companies in which we invest are still far from achieving gender parity, gender diversity is increasing. At the end of 2019, holdings in the Sustainable Leaders Strategy had a weighted average of 31% female representation, and holdings in the Sustainable Future Strategy had a weighted average of 29%. Both measures have steadily risen over the past two years, and both are currently higher than the board composition of their respective benchmarks. The averages for the Russell Midcap Growth Index are currently significantly lower than those of the S&P 500, indicating a general trend of better gender parity on the boards of larger companies.

Portfolio characteristics are for a representative account and are shown for illustrative purposes only. Each account is managed individually. Accordingly, account characteristics may vary.

Our portfolios also have a higher-than-market representation of companies where women comprise 30% or more of total board membership. This level is important because, around the 30% mark, the inputs a woman might give shift from being perceived as “a woman’s point of view” to “a different point of view.” In short, this level of participation allows women’s inputs to be more fully incorporated into corporate governance.

Percentage of portfolio/index companies with women comprising at least 30% of board

Source: Data from MSCI ESG Research LLC, as of 12/31/19. Calculations by Putnam.

This measure also improved for both of our portfolios in the past year, with nearly half of corporate boards passing the 30% threshold. In our opinion, of broader importance for society, there was meaningful progress among benchmark companies over the same time period.

Despite these improvements, S&P 500 boards continue to be imbalanced, with almost 5,500 men serving as members compared with just 1,500 women. Progress to date is notable, yet clearly more work is ahead to achieve gender parity. (McKinsey, Putnam, as of December 2019).

Diversity as a problem-solving advantage

Our research process extends beyond the specific metric of women membership on corporate boards. We focus on understanding how companies prioritize diversity in all forms and at all levels of the organization. Our findings indicate that teams with diverse perspectives and experiences have stronger decision-making ability, particularly when facing dynamic and complex problems.

We also examine a board’s accountability to stakeholders and transparency. We believe that all of these areas have meaningful implications for understanding long-term governance.

The association between diverse boards and strong financial outcomes highlights the potential benefits of investing in diversity. It can serve as a starting point for incorporating a more complete assessment of the composition of all company teams — beyond the boardroom.

Board diversity is one example of the areas we research as we aim to assess the impact of material environmental, social, and governance issues on the health of companies.

Now more than ever, we believe that sustainable companies could prove to be more resilient than other companies over the long term.

*Source: “Board Diversity, Firm Risk, and Corporate Policies,” February 2016 (

†Source: McKinsey, “Women Matter: Time to accelerate,” October 2017, for 2008 data, and Putnam for 2019 calculation (

‡Source: “Critical Mass on Corporate Boards: Why three or more women enhance governance,” V. Kramer & Associates, University of Western Ontario, Wellesley Centers for Women, 2006. (; most recent available.


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