Bank of America Merrill Lynch has a solution for any company looking to boost the bottom line: Appoint more women to executive positions.
Over the last seven years, S&P 500 companies where at least 25% of executives were female generated higher one-year returns on equity than the overall index, on a median basis, according to data compiled by the firm.
“Gender diversity may drive better returns,” BAML strategists led by Savita Subramanian wrote in a client report, noting that women make up just 22% of S&P 500 boards right now.
The chart below shows this dynamic at work. The blue bars represent companies where women hold more than 25% of executive positions — and as you can see, the group has outperformed in each of the last seven years.
BAML also cites a McKinsey study from 2015 that found a “statistically significant relationship between diversity of leadership teams and financial performance.”
According to the study, companies in the top quartile for gender diversity were 15% more likely to see their operating income above the industry median.
Further, BAML finds that companies with more female executives have historically experienced lower stock price and earnings-per-share volatility.
“Companies that invest in women tend to have more favorable fundamental attributes, and with the rise in impact investing, a growing investor base,” the firm said.