Women in business: Making a case for more diversity in boardrooms  

Research shows that diversity in the boardroom brings in dividends, with companies that have more women on their boards delivering a 36% better return on equity. African investors should take note.  This opinion is by Marcia Ashong and Tamsin Jones, co-founders of TheBoardroom Africa

Names like Dangote Industries or Safaricom may be familiar across Africa, but the names of those on their boards are foreign to most ears. Yet boards play a pivotal role in the decisions that shape shareholder value, from setting strategy to monitoring risks, planning succession, and more. Strong boards are the key to building the strong companies required to catapult Africa’s growth, but the growth potential of the region’s private sector will remain unfulfilled unless more women are offered a seat at the table.

The benefits of gender diverse workplaces are well established – a 2015 McKinsey report estimated that closing the gender labour gap could add as much as $28 trillion, or 26%, to annual global GDP by 2025. In Africa’s private sector that type of boost is vital to meet the needs of the youngest, fastest-growing population on earth. In 2015, MSCI, the world’s leading equity index provider, found that companies with more women on their boards have delivered a 36% better return on equity than peers lacking gender diversity. Diverse groups make better decisions. Given that the board makes critical decisions on the company’s direction and strategy, it makes sense to have directors with diverse perspectives – including women – in the boardroom. But despite the research showing the dividends that boardroom diversity brings, few investors in Africa champion women in the boardroom.

Beyond ticking a box

Without women on boards, companies compromise their understanding of their client and consumer base. In a disruptive age, women can be critical to unlocking new global markets as women’s purchasing power swells. Gender diversity often takes a backseat to what many view as “more pressing” business issues; however, board effectiveness is critical to a well-functioning business. And it is critical that adding gender diversity doesn’t just stop with adding one woman to the boardroom: studies show that boards need three or more women in order to fully reap the benefits of added diversity. Championing more women in the boardroom is not a “box-checking exercise” – it’s an effort to capitalise on new insights that emerge from diverse perspectives.

Investors can play a special role

One of the best and most measurable ways for investors to promote the kind of gender equity that helps improve returns is to maximise the role they play in shaping their investee companies and funds.

In 2015, the International Finance Corporation set a goal of reaching 30% female representation on the board of the companies in which it invests, and has made rapid progress towards achieving this target. In June last year, development finance institutions (DFIs) announced they would make a similar commitment through the 2X Challenge, which aims to mobilise $3bn globally to support investments in women.

One of the key criteria of the initiative is leadership, with a target of ensuring 20-30% of women in senior leadership on boards and investment committees. This landmark initiative should be replicated by the broader investment community to signal that profits and development can – and should – be intertwined. By using their capital and influence, investors can ensure that their investee businesses achieve gender-balanced boards and management teams, and encourage the development of gender-smart products and services catering to the needs of the rapidly growing female economy.

Emerging Capital Partners (ECP), one of Africa’s largest private equity funds, has led the charge in ensuring its portfolio companies appoint leading African senior executive women from Binta Touré Ndoye to Manelle Otmane. Similarly, the UK’s CDC Group, the continent’s largest investor for portfolio size, has explicitly integrated gender from supply chain to leadership into its newly established gender strategy by supporting women’s leadership, improving women’s job quality, promoting women’s access to finance and entrepreneurship as well as applying a gender lens to products and services.

Noted economist David Landes once wrote that “the best clue to a nation’s growth and development potential is the status and role of women.” The best investors – and best investments – take advantage of women’s talent and ideas, and analyse gender balance in much the same way they analyse other areas of performance.

The representation of women in board and investment committees must move on to mirror the significant role women play in society.