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You've run all the financial ratios before buying a company's shares. You've also examined the track record for earnings and dividend growth, looked at the company's biggest projects, considered the industry outlook and analyzed the balance sheet for warning signs.

But have you checked the estrogen level in the executive suite?

While few investors consider buying a company's shares based on the presence of women in top positions, several studies show there is a significant link with better financial performance.

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"I think there is a clear business case, and the business case is very plausible," says Robert Walker, vice-president of environmental, social and governance services at Toronto-based NEI Investments, which operates the Ethical Funds mutual fund group.

Catalyst, an advocacy group for women in business, examined Fortune 500 companies in the U.S. between 1996 and 2000 and found return on equity was 35.1-per-cent higher in the quartile of companies with the most women in top management, compared with the quartile with the fewest women. Total shareholder return was 34-per-cent higher.

Another Catalyst study in 2007 found the quartile of companies with the most women on their boards outpaced the bottom quartile by 53 per cent for return on equity, 42 per cent for return on sales and 66 per cent for return on invested capital from 2001 to 2004.

Similarly, a 2007 review by global consulting firm McKinsey & Co. concluded its "statistically significant" study showed European companies with the most senior women are the best performers.

McKinsey looked at large European companies with the most gender diversity in top management and compared them to their industry peers, concluding return on equity was 10-per-cent higher at companies with the most women, while profit before interest and taxes was 48-per-cent better.

And in an ambitious U.S. study of women in executive roles, Pepperdine University professor Roy Adler examined 200 Fortune 500 companies between 1980 and 2001. Prof. Adler called the results "astonishing," saying the 25 best firms for promoting women to executive ranks significantly outperformed their industry peers in profitability when measured as a percentage of revenue, assets or equity.

Prof. Adler later reported that the results were confirmed in subsequent studies in 2004, 2005, 2006, and 2007.

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In a less academic review, USA Today examined the performance of 13 U.S. Fortune 500 companies headed by women CEOs in 2009 and found they posted average share price returns of 50 per cent in 2009, compared with a 25-per-cent return for the index overall.

They included retailer TJX Cos., led by Carol Meyrowitz; Yahoo Inc., led by Carol Bartz; and health insurance provider WellPoint Inc., led by Angela Braly.

All the studies admit that while the research may show a correlation, it doesn't prove causality. In other words, the presence of senior women may not be causing the better performance, but may instead be a reflection that the company is better managed in many respects.

Supporters say it seems reasonable that companies with good management-development programs and a commitment to supporting diverse viewpoints could have better decision-making processes, which benefit the bottom line.

"We think this is huge, because this is about the talent pool," says Laura O'Neill, director of law and policy at the Vancouver-based Shareholder Association for Research and Education (SHARE), which offers responsible investing services to large shareholders such as pension funds.

SHARE, which also offers proxy voting advisory services to institutional clients, has adopted a new voting guideline this year for S&P/TSX composite index companies, recommending voting against members of a board's nominating committee if there are no women on the board and if the company offers no commentary or explanation to address the issue in its proxy circular.

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"When you see a [shortfall]like this, you can't help but feel that perspectives and experiences that might really add to the investment value just aren't being accessed. That's a very serious issue," Ms. O'Neill said.

Liberal Senator Céline Hervieux-Payette, who has introduced legislation in the Senate demanding companies have gender parity on their boards, says she is championing women primarily because she is convinced by the business case that diversity improves the bottom line. Concerns about fairness and equality are a second consideration, she says.

The argument isn't that women are better at business than men, she says, but that they bring complementary skills to enhance analysis and decision-making.

"It's the juncture of the two that will make a better decision," she said.

But even Ms. Hervieux-Payette is compelled to set aside her passionate advocacy for women when she invests her own money in the stock market. So few major companies have significant numbers of women at the top that it is impossible to build a diversified portfolio just by investing in companies with significant gender parity.

"I could not buy any these days," she says. "When you put together a portfolio, you have to have a balanced approach and there are sectors, like mining, that are not a very strong sector for women."

Catalyst senior vice-president Deborah Gillis says she is convinced there's a positive business impact for companies that use "the full range of available talent" by promoting women, but acknowledges investors have been slow to consider the issue, possibly because they are unaware of the research or have a mistaken belief that women have already mostly achieved parity in top ranks.

A Catalyst review released last week of 468 of Canada's largest companies found women fill just 17.7 per cent of senior officer positions in Canada. Thirty per cent of companies have no women in senior roles, while 31 per cent have at least one-fourth of their senior jobs filled by women.

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