We’ve heard it time and again: companies that recruit their workforce from diverse backgrounds, and with different experiences, foster a stronger, more innovative enterprise and a healthier, more productive economy. When it comes to gender diversity, an even better rationale may be profits. According to Credit Suisse Research (2012), companies with at least one female director experience better returns for six straight years.
If the financial argument for gender diversity is so compelling, then why aren’t companies recruiting more women to their boards? A recent [Ernst & Young] study claims there is a shortage of women, and Bloomberg says that even by 2035 women will still be underrepresented. It’s a significant opportunity potentially lost.
There are many different kinds of leaders, and a variety of types that are effective. We find diversity in the C-suite and on boards. The different types head divisions and operate in foreign countries. They are found in service companies and manufacturers. The question is, do the varying types of leadership impact corporate performance differently…or at all?
One study among the many I have reviewed stands out. Ernst & Young and The Peterson Institute for International Economics began analyzing the relative absence of women from corporate executive boards and upper levels of management globally. The goal was to determine: Is Gender Diversity Profitable?
Similar studies have been undertaken in different countries and specific industries; but this is the first study to analyze 21,980 publicly traded firms from 91 countries, via Reuter’s publicly available stock profiles:
The data contains firm level information on the gender composition of the executive team, corporate boards, the size of the board, as well as the gender of the CEO and board chair. It includes the firm’s revenues and profitability.
Here are some highlights from the study:
- There is a striking correlation between a greater number of female leaders and firm profitability. A firm with 30% female leaders could add up to 6% to its net margin. Companies that have female leadership interacting across many levels—directors, CEOs and executives—will achieve the highest return.
- Nearly 33% of firms had no women on the board or C-suite positions. Only 5% of firms had a female CEO; 50% of firms had no female executives.
- Norway, Latvia and Italy are the most gender-balanced countries; the Netherlands, Austria and Mexico are among the least gender-balanced. Turkey has the second highest percentage of female CEOs among the OECD (Organization for Economic Co-operation and Development) countries; and 22.2% of board members in the country are women, according to research by the Cranfield School of Management.
- Finance, healthcare and utilities are the most gender diverse; and technology, energy, and basic materials are the least gender-diverse sectors.
- Paternity leave (and NOT maternity leave policies) is correlated with increased female leadership. The top gender balanced countries provided 11 times more paternity leave days than did the bottom 10 countries.
A 2012 Dow Jones study shows that business startups are more likely to succeed if they have women on their executive team. And according to the Center for Women’s Business Research, although women own about 40% of the private businesses in the U.S., women make up less than 10% of venture-backed start-ups.
Women also had certain attributes that stood out over men’s. A recent McKinsey + Company team asked business executives globally what they believe the most important leadership attributes are for success today, and “each of the top four—intellectual stimulation, inspiration, participatory decision-making and setting expectations/rewards—were more commonly found among women leaders.” Another study found women leaders possessed more leadership traits of honesty, intelligence, compassion and creativity than men, whereas men only scored higher in decisiveness.
According to a Bloomberg survey, companies with at least one female director had better returns for six straight years…which raises the question: “If the financial argument for gender diversity is so compelling, then why aren’t companies recruiting more women to their boards?”
The EY Study claims there is a shortage of women, and Bloomberg says that even by 2035 women will still be underrepresented. It’s a significant opportunity…lost.
A position paper written by the Bloomberg View editorial board put it succinctly: “Equality is a worthy goal on its own terms, of course. But for the corporate world, the better rationale for gender diversity is financial.”
Ken Makovsky is President of Makovsky and Trustee for the Institute for Public Relations. Follow him on Twitter at @3centsmak.
