Businesses looking for a way to improve profitability should consider a simple solution, encourage more women into senior leadership roles!
That’s the findings of the recent study: Is Gender Diversity Profitable? Evidence from a Global Survey by Marcus Noland, Tyler Moran, and Barbara Kotschwar from the Washington based Peterson Institute.
The correlation between women at the C-suite level and firm profitability is demonstrated repeatedly, and the magnitude of the estimated effects is not small.”
The paper addresses the relative absence of women on corporate executive boards and at the upper levels of management (C-suite) globally. It is based on a 2014 sample of almost 22,000 companies headquartered in 91 countries.
It found that in 2014 almost 60% of these firms had no female board members, just over half had no female C-suite executives, and fewer than 5% had a female CEO. But there was considerable variation among countries: Norway, Latvia, Slovenia, and Bulgaria had at least 20% female representation in board members and senior executives; only 2% of Japanese board members and 2.5% of Japanese C-suite executives were women.
There was similar, though less dramatic, variation across sectors as well: financial services, health care, utilities, and telecommunications were relatively welcoming to female leadership, while fewer women were found at the top in basic materials, technology, energy, and industrial sectors.
The main finding was that these figures matter to the bottom line.
When the profitable firms in the sample were examined (average net margin of 6.4%), it was found that going from having no women in corporate leadership (the CEO, the board, and other C-suite positions) to a 30% female share is associated with a one-percentage-point increase in net margin — which translates to a 15% increase in profitability for a typical organisation.
However, it is not just a matter of getting women to the very top ranks of management. The results indicate that the impact of having more women in the C-suite is bigger than that of having a woman on the board or as the CEO. In fact, they found that female CEOs neither systematically outperform nor under perform their male counterparts. This pattern underscores the importance of creating a pipeline of female managers and not simply getting a lone women to the top.
The study reports that having more women at top senior leadership positions contributes to superior company performance because:
1. Increased skill diversity within top management, increases effectiveness in monitoring staff performance, and less gender discrimination throughout the management ranks, which helps to recruit, promote, and retain talent.
2. Gender-biased companies do not reward employees with responsibilities commensurate with their talent, and therefore they lose out to rivals that do not discriminate. Their lack of gender diversity affects the bottom line.
So how do we get more women into these senior leadership positions?
The research underscores the need to encourage female advancement throughout the organisation and suggests that pursuing policies to help women in the middle of their careers might be better than just directly addressing board membership.
Now you know companies with more women in senior positions are more profitable whats your next step going to be?
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To download the full report here.