THE best performing companies are likely to have a smaller board size and a high proportion of female directors, according to new research published today.
Law firm Eversheds studied the share price performance of 241 companies around the globe between January 2007 and December 2009, then used the data to find the “ideal” board composition.
Analysis showed a high female presence was the third strongest link to good share price performance, after board size and substantial shareholders – where a higher percentage of investors hold more than three per cent of the issued capital each.
The study echoes the recent report by Lord Davies, who warned UK boardrooms were “in crisis” over the low percentage of females on boards and called for the introduction of a quota if companies do not voluntarily double female representation in the next four years.
However, when interviewed, only 55 per cent of directors thought that diversity for its own sake was beneficial for board and company performance and only half that number was directly in favour of taking positive action to appoint more women onto boards.
Research showed that, while the boards surveyed had between six and 32 directors, 11 was the optimum number for a FTSE 100 company.
The study also found a strong correlation between share price performance and the number of independent directors on company boards. When interviewed, directors narrowly preferred independence to experience, however 67 per cent believed both were equally important.
Mark Spinner, corporate partner at Eversheds, said: “During the financial crisis, many directors reported that there was a ‘power shift’, with executive directors relying on the experience of non-executive directors more than previously. However, the general consensus seems to be that this would not be a permanent change – many directors believe now is the time for non-executive directors to ‘pull back’ and allow the executive management team to manage.”
Eversheds said the analysis was complemented with in-depth interviews with 50 directors from a cross section of the companies. They were asked for their opinions on board role, composition and effectiveness, then the findings were analysed by region and industry sector.