If a roomful of men can draw on their experiences and insights to help a business succeed, a roomful of men and women drawing from a deeper pool can achieve even more. Given the growing evidence about the business value of gender-balanced leadership, businesses have to wonder how much more successful they could be with this balance in the management ranks.
In today’s ultracompetitive global economy, even high-performing companies can’t afford to rest on their laurels. Corporate heavyweights spend hundreds of billions of dollars on research and development each year, fine-tuning products and nurturing innovations they hope will give them an edge in the marketplace. Yet most still overlook a far simpler and more affordable investment in human capital that’s been proven to make a difference: getting more women onto their leadership teams and governing boards.
Companies can and do thrive with men firmly in control, but given the growing evidence about the business value of gender-balanced leadership, you have to wonder how much more successful they could be with this additional resource in the management ranks. What are firms missing when women are left out of key decisions? What is the real cost of maintaining these men’s clubs? Is it worth the price?
Following the Numbers
The boardroom gender gap has spurred various initiatives, along with plenty of research to support what is common sense: If a roomful of men can draw on their experiences and insights to help a business succeed, a roomful of men and women drawing from a deeper pool can achieve even more.
In a 2010 study, a group of professors from Carnegie Mellon University and the MIT Center for Collective Intelligence found that a group’s gender mix is among the factors affecting shared aptitude: The more women a group has, the better it performs on tasks such as brainstorming, decision-making, and problem-solving. By measuring the ability of groups to perform a wide range of tasks, they determined that it was not the intelligence of group members that affected performance but the correlation to the social sensitivity of the groups, which affected turn taking in conversation, and the proportion of females in the groups. They refer to the measurement of this type of group intelligence as the c factor, or collective intelligence.
Credit Suisse Research Institute’s 2012 Gender Diversity and Corporate Performance report presents findings that show better financial performance and stock market valuations among companies with gender-balanced boards. While researchers caution that they don’t yet have enough information to conclusively prove cause and effect, the data is striking:
– Since 2005, publicly traded companies with more than one woman on their boards have seen stock market returns of a compound 3.7 percent a year higher than those with no female representation.
– Firms with a higher proportion of women on the board have higher valuations, better returns on equity, and higher payout ratios.
– In every sector, from telecommunications to utilities, companies with no gender balance on the board have lower-than-average market capitalisation; those with three or more female board members exceed the average.
In 2014, Credit Suisse Research Institute expanded research to include data on women in senior management. It paints a similar picture: Firms with women in 15 percent or more of their top jobs consistently outperform those with under 10 percent. And as the leadership team becomes more balanced, results improve, according to Credit Suisse, which surveyed 3,000 companies across forty countries and all major sectors:
– Since 2009, companies with a three-to-one male-female management mix have averaged annualised returns of nearly 23 percent.
– Where a third of the managers are women, average returns increased to more than 25 percent.
– When the numbers are balanced – a far smaller sample size – annualised returns exceed 28 percent.
[su_pullquote]Where a third of the managers are women, average returns increased to more than 25%.[/su_pullquote]
Credit Suisse acknowledges that quantitative research alone is not sufficient to determine whether women are making companies better or if the most successful companies simply recognise the advantages of female participation.
Still, gender balance on corporate boards has become a point of emphasis among regulators worldwide. Several countries have set mandatory quotas (with incentives and penalties) or voluntary targets with mixed results, though the quota approach seems to be gaining traction faster. For example, as Aaron Dhir notes in Challenging Boardroom Homogeneity –
– Norway leads all countries, with 40.5 percent female representation on corporate boards; there must be four women and four men on a board that has nine directors.
– Spain requires companies reporting financial results to have 40 percent representation of both genders on their boards; the country gives what they call a corporate equality mark to companies that achieve gender-balance targets, which they can use in promotional materials and commercial activities.
– Companies in the Netherlands must disclose the reasons for not achieving gender balance in their annual reports and identify actions they will take going forward to achieve the targets.
[su_pullquote]Norway leads all countries, with 40.5 percent female representation on corporate boards; there must be four women and four men on a board that has nine directors.[/su_pullquote]
In the United States, the Securities and Exchange Commission (SEC) requires public companies to disclose how they approach diversity when identifying nominees for board positions, but gender is not specifically addressed. In December 2009, the SEC voted four to one to approve amendments to its proxy disclosure, including Item 407(c)(2)(vi):
“Describe the nominating committee’s process for identifying and evaluating nominees for director, including nominees recommended by security holders, and any differences in the manner in which the nominating committee evaluates nominees for director based on whether the nominee is recommended by a security holder, and whether, and if so how, the nominating committee (or the board) considers diversity in identifying nominees for director. If the nominating committee (or the board) has a policy with regard to the consideration of diversity in identifying director nominees, describe how this policy is implemented, as well as how the nominating committee (or the board) assesses the effectiveness of its policy.”
While the SEC may be attempting to get United States corporate boards to consider diversity when selecting directors, there is no requirement to have a policy in place and no defined objectives or set criteria for what a policy must contain. With such vague accountability, the United States will struggle to move the needle in gender balance as opposed to countries with more defined targets and implementation requirements.
Advocates for gender-balanced corporate leadership say having more women in positions of authority would help companies better engage with constituents – internal and external – and develop a more robust pipeline of future female leaders by increasing the number of role models.
Although evidence supporting that assertion tends to be more qualitative than quantitative, it is equally compelling. Dhir’s Challenging Boardroom Homogeneity discusses how a board’s culture and behaviours change in ways that improves their overall effectiveness when more women are part of the entity. These include the following:
– Enhanced dialogue
– Better decision-making, including the value of dissent
– More effective risk mitigation and crisis management, with better balance between risk-welcoming and risk-aversion behaviour
– Higher quality monitoring of and guidance to management
– More orderly and systematic board work
– Positive changes in the behaviour of men
A 2013 Canadian research study published in the International Journal of Business Governance and Ethics concludes that female board members are “significantly better” at making decisions than male counterparts because they –
– Rely more on complex moral reasoning skills, which involves acknowledging and considering the rights of others in the pursuit of fairness
– Use a cooperative, consensus-building approach to problem-solving
On the other hand, in this study, male executives scored higher than females in the use of normative reasoning, which suggests men may prefer to make decisions using rules, regulations, and traditional ways of doing business or getting along. As the study suggests, female directors may be more apt to suggest changes in thought processes that impact decision-making. Change is hard. Could this be one of the reasons why male-dominated boards still exist?
“Having input from board members with different backgrounds typically means more creativity, fresh ideas, and better outcomes,” stated United States Secretary of Commerce Penny Pritzker during the 2014 Global Conference on Women in the Boardroom. She speaks from experience: During twenty-seven years in the private sector, Pritzker founded five companies, sat on corporate boards, and helped lead businesses. She said, “Too often, I have entered the boardroom or the corporate dining room and realiSed that I was the only woman there. That must change – and it must change right away.”
Additional balance can also enhance corporate culture and reputation, Pritzker said, given the “positive correlation” to better oversight and governance as well as greater corporate social responsibility. “Diversity in corporate leadership is not solely a women’s issue. It is an issue of economic competitiveness. And the presence of more women in the boardroom and in the corporate suite is critical to companies’ creativity, performance, and ability to thrive in the twenty-first century.”
Consulting firm Deloitte began addressing its gender gap in 1993 with its Initiative for the Retention and Advancement of Women, known internally as WIN. At the time, just 97 of the firm’s partners, principals, and directors were women, representing a mere 7 percent of the total. By 2009, that number exceeded 1,100 – 23 percent of the management team.
There are organisations that don’t need further convincing, such as global personal-care products maker Kimberly-Clark Corporation, which created its Unleash Your Power Initiative in 2009, when only 2 of the 9 corporate officers who reported to the CEO were women, despite the company’s predominantly female customer base. By 2013, five of the nine executives were women, and annual revenues and profits had increased.
Fuelling the Urgency
A McKinsey & Company Women Matter report shows that although 72 percent of responding executives agree there’s a link between gender balance and business success, just 28 percent see achieving that balance as a top priority.
[su_pullquote]Although 72 percent of responding executives agree there’s a link between gender balance and business success, just 28 percent see achieving that balance as a top priority.[/su_pullquote]
This disconnect seems critical. Women play an increasingly crucial role in the global economy, controlling more than 80 percent of United States consumer spending, for example, and representing about half of all shareholders. Developing talent is becoming more important for businesses as old, industrial-age models continue to give way to a knowledge-based economy. Today, more than 85 percent of corporate value creation is tied to intangible assets such as people, brand, and intellectual property, assert Cathleen Benko and Molly Anderson in their 2013 book, The Corporate Lattice: Achieving High Performance in the Changing World of Work. It’s a stark contrast from the days when most value came from hard assets. At the current rate of change, most readers of this book at the time of publication will be dead before gender balance hits 50 percent.
Change is happening, but way too slowly. Consider this: 16 percent of board seats were held by women in 2011, compared to 19 percent in 2014, when more focus was directed toward this challenge. At this rate, it will take another decade to reach 25 percent and more than thirty years to come near 50 percent. The idea that our social values will drive us toward gender balance is not working. What will it take?
Time to Act
Though it’s human nature, not bad intentions, to surround ourselves with those most like us, we need to break out of that comfort zone to leverage the competitive advantage of gender balance. The cloning effect that continues to occur by hiring and promoting people who are just like us (whoever we are) is bad for business. It creates dominant groups of people who are closed off and get little to no exposure to the thought processes of people who are wired differently or have different perspectives based on their life experiences and cultures.
Is it easy to move away from what is known and comfortable? No. Will it take longer to find people outside of your usual networks? Yes. Will bringing people who think differently into the fold make your life more difficult because they will challenge and ask questions you didn’t already think of? Yes. Will you get to better outcomes both in the short and long term? Yes! Because men hold most positions of power, men supply the critical mass needed to drive this change. Business leaders must decide now to –
– Be motivated to take action
– Recognise the strengths women bring to the table
– Realise what they’re missing by not having balanced thought leadership
– Hire with balance in mind
– Take a closer look at female talent around them
– Develop and promote more women into leadership roles
– Understand how women in leadership roles will help build a stronger business and a better bottom line
– Do what’s needed to get and keep more women in leadership
Adapted from Money on the Table: How to Increase Profits Through Gender-Balanced Leadership (Greenleaf Book Group Press) by Melissa Greenwell. Copyright (c) 2016 by Melissa Greenwell. All rights reserved. This book is available at all bookstores and online booksellers.
About the Author
Melissa Greenwell is the author of MONEY ON THE TABLE: How to Increase Profits Through Gender-Balanced Leadership (Greenleaf Book Group, January 2017). She is Executive Vice President and Chief Operating Officer of national retailer The Finish Line, Inc. You can learn more at www.melissa-greenwell.com