By Monica D’Ascenzo – Il Sole 24 Ore

It all comes down to margins and profitability. Just ask managers, investors or closed-ended funds taking over companies.

In this regard, the conclusions of the latest Finance Paper “Boardroom gender diversity and performance of listed companies in Italy”, published by Consob, cannot go unobserved. «Women can impact the board’s decisions and performance when they reach a critical mass».

The researchers of the Italian authority (G.S.F.Bruno -Bocconi, A Ciavarella and N.Linciano) are thus embarking upon a debate which has been keeping economists busy for approximately one decade.

While the early studies targeted Norway, the first European country to have introduced gender quotas in the board composition, they drew somewhat inconsistent conclusions as the timeframe addressed was too short.

Italy, instead, undertakes for the first time a more complex analysis which, with the aid of dynamic economic models, is leading to interesting results. According to the account jointly outlined by the researchers of Bocconi University and Consob «when the percentage of women sitting on the Board exceeds a given threshold, oscillating between 17% and 20%, they are estimated to have a positive, significant impact on the performance standards». In the case in point, the standards considered are ROA, ROE, ROIC andROS.

In greater detail, the first evidence shows that the presence of just one woman in the board of directors cannot possibly have an impact on the company’s results. Reckoning that the average Italian board totals a dozen members, things change when the boardroom numbers at least two women or more. When women account for 20%, the impact is confined to the ROS (Return on sales) and records 0,79. The impact is fully successful when the female presence comes up to 30%: +0,51 ROA (Return on assets), 1,734 ROE (Return on equity), 0,67 ROIC (Return on invested capital) and 6,82 ROS. The table below shows that the impact trend is keyed to the percentage of women sitting on the Board of Directors.

Source: Consob

Does it mean that women are beneficial to companies’ balance sheets? While the equation would be rather simplistic, on the other hand some international studies demonstrate that diversity comes across as the decisive issue. Furthermore, the study published by Consob sheds light on an interesting aspect and highlights the changes occurred in the identikit of the Italian board members following the increased presence of women in corporate bodies.

Italy among European best practice examples

Let us take one step backward. The study promoted by Consob spans a timeframe during which a significant change has taken place. While in 2008 only 44% of Italian companies listed on the Stock Exchange had a woman sitting on the Board of Directors, the percentage of women in the boardroom was confined to 6%. The turning point was witnessed when the law 120/2011 was enforced. Known as the Golfo-Mosca law (after the first two petitioners’ names, Lella Golfo from Forza Italia and Alessia Mosca from the Democratic party), the law provides that, following its enforcement, public listed and controlled companies are to allocate one fifth of the board seats to the under-represented gender upon the first renewal and one third upon the second and third renewal. The provision has thus contributed to a 17% increase of women sitting on the Board of Directors upon the first renewal and a subsequent +11% upon the second. By June 2017, the percentage of female quotas had exceeded the legal requirements and came up to 33,6%, one of the highest by European standards, over a total of 22.003 seats in 2.219 companies.

Also, the regulation has had an indirect impact on the profile of the board members, be they men or women. Firstly, women are more often independent board members (70% vs. 38,8% of men). The rise of women in the boardroom has also contributed to reduce the board members’ average age: from 57,6 years old in 2012, the age has dropped to 56,6 years old. At the same time education standards are higher: while female graduates and post-graduates respectively account for 90% (66% in 2008) and 26,1% (vs. 12,5% in 2008), among men, the increase recorded is 8% for graduates and 4% for post-graduates. The mean thus totals 86,7% graduates (76,3% in 2008) and 18,7% post-graduates (vs. 11,5%).

From the professional point of view, while the number of managers seems to be shrinking, the percentage of consultants, professionals and scholars has increased, also because the career of women in high-ranking jobs is complex and the number of managers available still low. Undoubtedly, although the number of women occupying multiple professional positions has been rising, with a shift from 14% in 2012 to 30%, it is still far from striking.

In a nutshell, it can be inferred that the regulation providing for gender quotas has had an indirect impact on the overall quality of Italian boards, thus contributing to the profitability results mentioned earlier. Unquestionably a major achievement for the Italian governance. On the other hand, the law has some time limits: renewal of three mandates for every company. Accordingly, since it will expire in 2021, a question comes spontaneous: will this decade produce a structural change able to prevent things from going back to square one? The study promoted by Consob provides a good reason why we should go further down this road.