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Getting On Board

Over the last decade, gender diversity on corporate boards has become one of the most talked about trends and reported on metric in corporate governance.  

It has been well established in a number of research studies that companies with diverse boards make better decisions and have better performance.  According to one study by McKinsey, companies with greater gender diversity have a 15% higher likelihood of financial performance versus the national average.

As a result, since 2015, major institutional investors, such as State Street Global Advisors and BlackRock, have placed pressure on their investees to improve board diversity.  And in the last few years, institutional investors have become even more vocal and active - by pushing for the SEC to adopt new disclosure requirements around board diversity, by helping companies to recruit for diverse directors and by refusing to do business with companies that don’t have at least one diverse board member.  

Now, according to a new study that found banks with more women on their boards commit less fraud, financial crime experts may start paying more attention too.  

The study conducted at Cass School of Business at City University of London looked at all fines issued by all U.S. regulators across a wide range of offenses - including sanctions violations, money laundering, market manipulations, tax and accounting fraud and more.  In an interview with the Harvard Business Review, Barbara Casu who led the research study said that the findings of the study were “clear and moderately strong: the financial institutions with greater female representation on their boards were fined less often and less significantly.”  

Despite the strength of the study’s findings, the reasons remain unknown.  Casu noted that while the findings may not mean that women are more ethical than men, they may be as a result of women being more risk averse or being nurtured to be more caring at a young age.  The next iteration of research will dig in deeper to understand the behavior further.    

Regardless of the behavioral rationale, this study echoes the increased attention we at Sigma see being placed on non-financial risk factors - especially as they relate to governance and financial crime risk at banks.  And it is clear that the industry wide demand for more transparency on these factors - and the implications it has for the financial crime industry - won’t be slowing down any time soon.

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