New Research Ties Female Leadership to Increased Profits
Optimal results come from a "pipeline" of female managers, not just a CEO.
Posted Feb 28, 2016
You can make all kinds of emotional arguments about the need to increase women in business leadership. I just came across the most compelling logical argument.
It’s a new, large global study that shows a strong link between “the presence of women in corporate leadership positions” and positive “firm performance.”
Released earlier this month, the study is called Is Gender Diversity Profitable? Evidence from a Global Survey. The survey, which analyzed 21,980 firms in 91 countries, was conducted by the Peterson Institute for International Economics, a Washington-based think tank. The study’s authors are Marcus Noland, Tyler Moran and Barbara Kotschwar; financial support for the study came from Ernst & Young.
It’s 35 pages of fascinating if rather dense reading. At the heart of it, however, is the basic core notion of the “positive correlation between the proportion of women in corporate leadership and firm profitability.”
Whether that increased profitability results from the quality of female leadership, the benefits that accrue from more diverse thinking, or other factors, isn’t clear. What is clear, however, is a statistical link. The report notes that the link could reflect, “the existence of discrimination against women executives (which gives nondiscriminating firms an edge) or the fact that the presence of women contributes to skill diversity (to the benefit of the firm).”
Needed: a "pipeline" of managers, not just a CEO - The report also makes an important point about the value of an organic “pipeline” of female managers throughout an organization, as opposed to simply installing a female CEO at the top. “The largest gains [in company performance] are for the proportion of female executives, followed by the proportion of female board members; the presence of females CEOs has no noticeable effect on firm performance. This pattern underscores the importance of creating a pipeline of female managers and not simply getting lone women to the top.”
The report emphasizes that the amount of profitability shown by the data is significant. “The estimated magnitudes of these correlations are not small,” the report concludes. “For profitable firms, a move from no female leaders to 30% representation is associated with a 15% increase in the net revenue margin. This estimate, derived from a cross-section, may well diminish if re-estimated in a panel setting and is surely subject to diminishing returns. Nevertheless, the robustness of this result from a global dataset warrants further study.”
Indeed it does. Of the 21,980 companies studied, nearly 60% have no female board members, over 50% have no female C-suite executives, and less than 5% have a female CEO. The report dryly states, “Women do not participate in the global economy to the same extent as men do.”
How do I personally feel about this research? How does it fit with my own experience? Well, over the four decades of my own career I’ve worked with and observed great female leaders and awful female leaders. Compared with men? Well, in that same time span I’ve worked with and observed great male leaders and awful male leaders. In short, in my own small world it’s hard to know. As we might say down on the farm, it’s a horse apiece.
Which is why, for big important uncertain issues like this one, it makes great business sense to get broad data.
Results from such studies may not always be popular, especially among some male business leaders. It’s just data, one can always argue. Perhaps. But if you’re not willing to listen to the data, then why ask the questions?
This article first appeared at Forbes.com.
* * *
Victor is author of The Type B Manager: Leading Successfully in a Type A World.
Find out why Howling Wolf Management Training is named what it is.