Adding more women to the top of the org chart could help boost your company’s bottom line. According to a recently published study from the Peterson Institute for International Economics, companies with at least 30% female leaders—specifically in senior management—had net profit margins up to 6 percentage points higher than companies with no women in senior management. This converts to a 15% increase in profitability for a typical company.
The global study, which surveyed almost 22,000 companies from 91 countries, isn’t the first to find that gender diversity can boost profitability, but it is the most comprehensive to date.
In 2015, McKinsey & Co. found that companies in the top quartile for gender diversity are 15% more likely to financially outperform their counterparts in the lower quartile. Additionally, McKinsey found that companies with more balanced leadership do a better job recruiting and retaining talented workers, leading to cost reductions associated with replacing top executives. In 2014, MIT researchers found that a more even gender split not only leads to happier, more productive employees, but could increase revenue by 41%.
How are women driving profits?
Not surprising, women bring skill diversity to the table, say researchers. A 2009 Journal of Financial Economics study found that more gender-balanced firms tend to hold CEOs more accountable for poor stock performance while a 2011 survey published in the Harvard Business Review found that women were rated higher in 12 out 16 competencies attributed to great leadership including collaboration, initiative, driving results and developing themselves and others. Functional diversity is key to building a more professionally cultured workforce.
With all of this significant fact-based research supporting higher profitability with more women at the top, why aren’t we seeing more companies promoting women into leadership? After all, women represent 40% of all MBA grads, but only 16% of executives in the U.S.
Motherhood, family responsibilities and time (equating to hours and even days) out of the workforce may also be at play. The Journal of Financial Economics published a telling paper on explanations for gender gap in career outcomes. A four year study of the University of Chicago’s Booth School of Business revealed that female graduates who entered the workforce at the same time as male counterparts were 12% less likely to be working nine years later. The paper cited that fewer years of experience and less flexibility than men could lead to smaller numbers of qualified women to climb the corporate ladder.
However, this study—and others—counter the “mommy track” argument with not only dollars and cents, but also raising the point that having a gender diversification in senior management creates a pipeline of female leaders that other women will aspire to attain. The PIIE study also found that companies with more female leadership contributed to less gender discrimination—leading to a more positive work environment and higher morale. Furthermore, the countries with the highest number of women in power had eleven times more paternity leave days than countries with the least, thus expanding the responsibility of childcare beyond women alone. These factors lead to a more even playing field for women who choose to start families.
While Meg Whitman and Marissa Mayer provide inspiration for aspiring female CEOs, the study did not find significant profit impact—negative or positive—in companies with women in CEO positions and limited benefits from female board seats. In fact, nearly 60% of the companies surveyed had no female board members, just over half had no female “C-suite” execs and less than 5% have a female CEO. While the presence of women at the top may encourage others to aspire for leadership positions, the study suggests that focusing on increased diversity at the C-suite and senior management levels are where the real payoffs rest for now.
Ultimately, having a more diverse leadership team tends to lead to better outcomes for companies overall. Some efforts that companies may consider are investment in education policies with an emphasis in math and introducing expanded child care benefits (i.e. paid family leave) and workplace flexibility are all factors that may contribute to a more diversified—and in turn, more profitable—workplace.