New research from The Peterson Institute for International Economics and EY shows that having more female leaders in business can significantly increase profitability. The report, Is Gender Diversity Profitable? Evidence from a Global Study, reveals that an organization with 30 percent female leaders could add up to 6 percentage points to its net margin.
This in-depth new study analyzes results from approximately 21,980 global publicly traded companies in 91 countries from a variety of industries and sectors.
“The impact of having more women in senior leadership on net margin, when a third of companies studied do not, begs the question of what would be the global economic impact if more women rose in the ranks?” said Stephen R. Howe, Jr., EY’s US Chairman and Americas Managing Partner. “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.”
The research uncovered that nearly one-third of companies globally have no women in either board or C-suite positions, 60 percent have no female board members, 50 percent have no female top executives, and less than 5 percent have a female CEO. Yet, the positive correlation between women in C-level ranks and the bottom line is demonstrated repeatedly, and magnitude of the estimated effects is substantial. Although the study found that there is no statistically observable impact of having a female CEO on organizational profitability, and the impact of women’s presence on the board is not statistically robust, the importance of having female management and presumably a pipeline of female future leaders is both robust and positive.
“As many companies and governments have rightly increased their focus on gender diversity in corporate leadership, The Peterson Institute and EY wanted to explore what key areas in business roles and in societal support for women in those roles, have the greatest return for revenue and economic growth,” said Adam Posen, President, The Peterson Institute for International Economics. “We have found that some policy initiatives are more promising than others to deliver benefits while promoting gender equality, and that the emphasis should be on increasing diversity in corporate management. At a minimum, the results from our unique global study strongly suggest the positive impact of gender diversity on firm performance and identify in which sectors and countries the most progress on diversity needs to be made.”
Some observations from the study:
Variations by country
The Peterson/EY research demonstrates that while no country has reached gender parity, there is substantial international variation in women’s representation. National averages for women’s participation on boards range from 4 percent in the case of Mexico to roughly 40 percent in Norway, with Latvia and Italy next in line at 25 and 24 percent, respectively. Similarly, fewer than 11 percent of Mexican executives are women, while women account for more than a third of Latvian and Bulgarian executives.
Variations by sector
The research reveals differences across industry sectors, with the financial, healthcare, utility and telecommunications sectors exhibiting the highest rates of female executive and board representation, ranging from 16-18 percent for women executives, and 12-14 percent for women directors. Basic materials, technology, energy and industrials are the sectors exhibiting the lowest representation of women in top positions, ranging from 10-12 percent for women executives and 8-10 percent for women directors.
Quotas for women directors
The Peterson/EY research explores the impact of quotas for women directors, instituted in some countries, which sparked some concerns that forcing change could have a negative impact on corporate performance, perhaps due to a scarcity of qualified women to serve on boards. The analysis indicates that women who sit on multiple boards are no more prevalent than men. Thirteen percent of male directors sit on two boards, compared with 12 percent of women directors. Three percent of each gender sits on three boards, and the number drops to 1 percent or less for those serving on four or more boards for both genders. More importantly, there is no support for the idea that such quotas reduce corporate performance.
Factors impacting women’s leadership
The research addresses other issues that impact women’s presence in corporate leadership, which is positively correlated with firm characteristics such as size, as well as national characteristics including policies for women’s education and family leave. The research’s statistical results suggest that at the firm level, the size of the company and the size of the board are robustly correlated with the presence of women on boards and in upper executive ranks (though not as CEOs). Promisingly, the results suggest that a set of controllable national characteristics are strongly correlated with higher gender diversity in management as well; these include high female to male relative scores on math assessments, high relative concentration in degree programs associated with management, and the ratio of female to male income, all of which could be interpreted as indicators of an economy’s institutional openness to and support for women’s success.
Equitable policies and benefits
“This research sheds light on the importance of establishing modern workplace benefits, providing equitable sponsorship opportunities, and creating inclusive work environments, so that both men and women can have equal access to leadership positions,” said Karyn Twaronite, EY Global Diversity & Inclusiveness Officer. “While it’s critical for organizations to increase access to leadership roles for women, they must also develop equitable strategies and programs to ensure men and women rise to the top and ultimately, increase the organization’s bottom line.”
The data points to other policy indicators positively correlated with gender diversity in management, and thus profitability, that are often overlooked, including the importance of paternal (not just maternal) leave, and openness to foreign investment, which could be interpreted as a sign of broader tolerance for new ways of doing business. Paternity leave – resources that would allow, and even encourage, fathers to participate more equitably in taking care of children – is significantly greater in the economies with more gender-balanced corporations: the top 10 economies had 11 times more paternity leave days than did the bottom 10. Peterson/EY’s research found, perhaps surprisingly, that mandated maternity leave alone is not correlated with increased female corporate leadership shares, though paternity leave is strongly correlated with the female share of board seats.
“If these correlations are interpreted causally, one could argue that countries in which fathers have access to more leave have significantly more women on corporate boards,” according to the study. “It stands to reason that policies that allow child care needs to be met but do not place the burden of care explicitly on women increase the chances that women can build the business acumen and professional contacts necessary to qualify for a corporate board.”
To learn more or access the complete Peterson/EY research, please visit http://www.iie.com/. The underlying data and calculations are available for replication and extension, in keeping with the Institute’s policy of research review and disclosure.
About The Peterson Institute
The Peterson Institute for International Economics is a private nonpartisan, nonprofit institution for rigorous, intellectually open, and in-depth study and discussion of international economic policy. Its purpose is to identify and analyze important issues to make globalization beneficial and sustainable for the people of the United States and the world, and then to develop and communicate practical new approaches for dealing with them. Its work is funded by a highly diverse group of philanthropic foundations, private corporations, and interested individuals, as well as by income on its capital fund. About 35 percent of the Institute’s resources in its latest fiscal year were provided by contributors from outside the United States. A list of all financial supporters for the preceding four years is posted at http://piie.com/institute/supporters.pdf.
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