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Gender Diversity May Correlate to Higher Credit Ratings

By Alexandra Garfinkle

Gender diversity on corporate boards correlates with higher credit ratings, according to a recent study from Moody’s Investors Service Inc.

The study, which looked at 1,109 publicly-traded companies in North America, found that “higher levels of gender diversity are associated with higher credit ratings,” per the report. Additionally, companies that exhibit both higher credit ratings and high levels of gender diversity on its boards, also have more women in C-suite roles.

These top-ranked companies clocked about 28% of their boards being composed by women. This isn’t far off from the overall female board presence in the S&P 500, which comes in at 26.6%, according to BoardEx, a sister company of The Deal.

Moody’s senior analyst Brendan Sheehan said that the 1,109 companies surveyed were chosen because they both were large issuers of public debt and had a significant amount of gender diversity data available.

Sheehan and colleagues kicked off the study in response the law California passed in September 2018, which required all public companies headquartered in the state to have at least one woman on their board by the end of 2019 and by 2021, companies with six or more board members are required to have at least three women on their boards.

Were California’s mandate extended across the United States and North America, the turnaround time — how long companies would have to comply — according to Sheehan, matters. Sheehan describes California’s timeline as “fairly aggressive.”

“Some sectors are going to have more challenges meeting those thresholds than others,” he said.

To that end, the Moody’s report identifies that energy, real estate and financial services will be among the sectors most in need of female board talent. Additionally, Texas, Pennsylvania, New York and Illinois are currently the homes of some of the most male-dominated boards (and subsequently, in the event of a new law, would require the most new female board talent).

California would also require a high number of new female board candidates, due to the concentration of companies based there.

All in all, were California’s law to be expanded across North America across 2,400 public companies, 7,058 board seats would have to be filled with female directors by 2021.

Moody’s also noted that such a significant management turnover would pose a short-term risk, as companies clamber to meet new mandates.

Sheehan cautions that the relationship found between gender diversity on boards and credit rating is correlational, not causational — it’s not clear that companies perform better because they have women on their boards, or vice versa.