An analysis of U.S. companies over a five-year period (2011–2016) by MSCI, an independent provider of research-driven insights and tools for institutional investors, revealed that the presence of three or more women on a corporate board of directors represents what seems to be a “tipping point” in terms of the effect on the company

’s financial performance.
According to MSCI, “companies that began the period studied with at least three women on the board experienced median gains in Return on Equity (ROE) of 10 percentage points and Earnings Per Share (EPS) of 37%. In contrast, companies that began the period with no female directors experienced median changes of -1 percentage point in ROE and -8% in EPS over the study period.”

The company compared the five-year EPS and ROE performances of companies that it grouped into four categories: 1) those that had three women on the board in 2011; 2) those that had zero women on the board in 2011; 3) those that added any number of women between 2011–2016; and 4) those that lost any number of women between 2011–2016.
Category 3 companies, those that added any number of women during the period studied, experienced median gains in EPS of 22%; and Category 4 companies, that began the period with women on their board but lost any number of them, experienced median gains in EPS of 11%.
Category 1 was the only category in which the companies experienced a greater than 1% median change in ROE.

Linda-Eling Lee, global head of ESG Research at MSCI, surmised that “such superior performance from companies with at least three female board members may derive from better decision-making by a more diverse group of directors, as some studies hypothesize. But outperformance may also be tied to greater gender diversity among senior leadership and the rest of the workforce, which has been correlated with reduced turnover and higher employee engagement.
“Globally, we [have] found that large multinational companies that had a critical mass of female directors tended to have more gender-diverse leadership teams and were more likely to have a female CEO. We also found that such companies were more effectively tapping available female talent supplies throughout the organization. Thus, the presence of at least three women directors may be seen as a doubly positive indicator: of a better-performing company and of a more functional organization overall. In short, having more women directors may lead to a virtuous cycle.”

It is important to note that a direct causal relationship between number of women on a corporate board and increased profitability was not established and other factors most certainly must come into play.