Kate Barton, vice chair of tax services at EY, started as an intern and now leads the firm?s tax practice in the Americas.

Archived: Proof that Companies with More Women Executives Have Higher Profits

A comprehensive global study that researched nearly 22,000 companies in 91 countries found businesses that include women in management experience more economic growth and are more profitable than companies where women are not in executive positions.

The study, “Is Gender Diversity Profitable Evidence From a Global Study,” was conducted by The Peterson Institute for International Economics in conjunction with EY (No. 3 on the 2016 DiversityInc Top 50 Companies for Diversity) and concluded that a company with even just 30 percent female leaders can contribute an additional 6 percentage points toward its net margin.

“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 U.S. 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 most successful companies, the research determined, are not necessarily the ones with the highest number of total female employees, nor are the ones headed by female CEOs and female board directors, but rather the companies where women are represented across all management levels.

The study looked at 21,980 firms in 91 different countries in 2014 and concluded that simply having a female CEO or women as board executives is not enough. Profitability is the most evident when companies place women in management positions and create a gender-diverse pipeline.

“The results do not suggest that female CEOs tend to outperform their male counterparts,” the study explains. “Instead, the benefits of female leadership participation appear to be driven by the fact that a more diverse leadership team tends to deliver better outcomes on average [and] the presence of female executives is associated with unusually strong firm performance.”

And the correlation is not small; companies with more female executives consistently have greater profitability compared to companies that do not hire women executives. These results apply to both profitable and unprofitable firms. Across the board, firms with more women in corporate roles increased their net profit by 6 percentage points. With such significant profits when looking at executive positions alone, the study points to the implication this could have on profitability when employing more women at all levels.

Why does corporate gender diversity increase profitability The study offers two possibilities: One, it could point to continued discrimination against females in executive roles, with this practice providing an advantage to companies that do not discriminate. For example, firms that discriminate, by definition, do not take advantage of all available talent, and may be poorly managed in other ways as well, allowing their non-discriminating rivals to outperform them.

The second possibility, the study finds, is that having a mix of women and men could be increasing a company’s functional diversity because men and women bring different skillsets to the table.

Typically, the percentages of women executives and board members vary over different sectors. Finance, healthcare, utilities and telecommunications all see the largest percentages of women in general, while basic materials, technology, energy and industrial see fewer female employees. Interestingly, though, women are more likely to be promoted into management in sectors that do not traditionally hire women. In finance, for instance, men and women have roughly equal representation at the entry level but female representation goes down by about half in management roles, significantly decreasing the pool of available women for advanced leadership positions. Meanwhile, women in transport, logistics, and energy sectors they are not normally hired in are more likely to be promoted into management.

Women Still Underrepresented Globally

The problem, however, is that most companies all over the world still greatly underrepresent women. Of the firms included in the study, about 60 percent of them have no women on their boards, and a little over 50 percent have none in their C-suites. Less than 5 percent have a woman as their CEO.

In order to increase gender diversity on their boards, some countries have implemented quotas. But these quotas and their results differ from country to country. Norway, for instance, has a 40 percent quota for publicly traded companies and, of the 132 firms analyzed in the report, 40 percent of board members are in fact women. In contrast, Finland has a 40 percent quota for state-owned companies, but of the 101 public and private firms studied, women only fill 23 percent of board seats.

While not as clearly profitable as gender diversity in the C-suite, the study still encourages companies to put women on their boards because companies that have gender diversity on their boards tend to have more women in their executive positions as well. This, in turn, will create greater profitability.

Country-specific variables, rather than sector-specific and sector/country-specific variables, had the most significant effect on results. Every country has a different impact on the two individual characteristics considered the most influential on how far a woman can advance in her career: education and work credentials. “If women were not obtaining the relevant educational credentials or participating in the workforce, it would be unsurprising that they were not moving up the corporate ladder,” the study explains. “Social attitudes, corporate practices, and national laws may be conditioning outcomes.”

In addition to education and work experience, company policies and benefits also differ greatly among countries with prevalent female leadership versus those without. This is especially true when it comes to paternity and maternity leave, the study found. Now more than ever, more families operate in a less “traditional” way, and, unlike in past generations, more households may have two working parents or a working mom and a stay-at-home dad. With various family needs emerging in newer generations, paid family leave is becoming more of an important topic.

The most gender-diverse countries have significantly more generous paternity leave policies: The top 10 most gender-balanced countries offer an average of 22 days of paternity leave, while the “average” countries offer just a week and the bottom 10 offer only two days. Many countries with low female representation on boards and in executive roles offer no paternity leave at all.

When it comes to maternity leave, the most gender-diverse countries actually offer a bit less in terms of time off and pay than the other countries. The study suggests that perhaps not placing the expectation of childcare solely on women could help them rise up in the ranks:

“More gender-neutral familyleave (and more supportive childcare institutions more generally) would also cut off the expectation by employers that young men will necessarily provide greater returnsto training and mentoring thanyoung women. … It is possible that the demonstration effect of seeing women as political leaders could have an impact, paving the way for women to break into corporate leadership. Female political leaders may also be more likely to promulgate policies that encourage gender equity.”

The study also found positive correlations some stronger than others between having femalesin corporate leadership roles and characteristics such as firm size, the size of the board and having a female CEO. And, once again, country specifications come into play as well. In this case, some examples include higher scores on math assessments, areas of study focused on management and the ratio of female to male income.

This comprehensive study presents conclusive data highlighting exactly why gender diversity is so important at the corporate level and how companies can ultimately benefit from it. While further research can always be done, the study concludes, “At a minimum the results from this global survey suggest promising directions for understanding both the impact of gender diversity on firm performance and the underlying drivers of diversity itself.”

“The key takeaway of our study is that diversifying upper management in a company (not just boards or CEOs) and implementing generous family leave policies is positively correlated with a company’s bottom line,” said Peterson Institute President Adam S. Posen. “We found that societies that offermore equal opportunities for women, specifically maternity and paternity leave and equal education opportunities, have seen larger gains in their corporate development.”

To see this story and the rest of the digital edition of the April 2016 issue of DiversityInc Magazine click here.

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