New research from The Peterson Institute for International Economics and Ernst and Young 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.”
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.
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.
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).
This research sheds light on the importance of establishing modern workplace benefits, providing equitable sponsorship opportunities, and creating inclusive work environments.
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.