The Diversity Advantage
A study of 22,000 firms finds a link between having women in leadership roles and profitability.
The tech company Slack recently made headlines when its CEO sent four African American women to accept an award on his behalf. This was a radical move in the tech sector, which is as a whole decidedly male. While other industries’ lack of gender diversity may be less glaring, it’s an issue economy-wide. “Diversity” has become such a ubiquitous concern in hiring that the writer Anna Holmes wondered whether the term has lost its meaning.
New research shows that there’s one reason why companies might want to hire a lot more women, especially at the higher ranks: It’s good for the bottom line. That’s the finding of a massive study by the Peterson Institute for International Economics and the accounting firm EY. The study looked at nearly 22,000 publicly traded companies in 91 countries, and found a correlation between the number of women in executive positions and a company’s profitability.
“The research demonstrates that while increasing the number of women directors and CEOs is important, growing the percentage of female leaders in the C-suite would likely benefit the bottom line even more,” said Stephen Howe, EY’s U.S. Chairman, in a press release.
Overall, the study found a dearth of women in corporate leadership positions. In the sample, 60 percent of companies had no female board members, and 50 percent had no female top executives. A female CEO was even harder to find: Less than 5 percent of the 22,000 companies had one. While the study saw no increase in profitability for companies led by female CEOs, it concluded that having women on corporate boards and C-level ranks was associated with better performance.
The authors of the report cautioned that this relationship may or may not be causative. Women could well be bringing about better results for their employers, but it could also be that the types of firms that hire without discriminating may also be the types of firms that are, relative to their industry peers, more forward-thinking and nimble in general.
The study also found that boardroom quotas, such as Norway’s, which legally requires 40 percent of a company’s board to be female, did not impact a company’s bottom line. (However, according to Aaron Dhir, the author of Challenging Boardroom Homogeneity, corporate directors in Norway feel that the requirements have enhanced the quality of the boardroom, as well as corporate governance.) But the study’s main finding is that if any profitable company moves from 0 percent women to 30 percent women in top management positions, it can expect to see its net profit increase 15 percent.