Boost gender diversity to boost profits

by Michael Mata14 Oct 2016
A new study by the Peterson Institute for International Economics (PIIE) and EY suggests that increasing gender diversity in the executive ranks can dramatically improve the bottom line. Companies with at least 30% women in leadership roles could boost net profit margins by about 15% compared to those without female leaders.

The study – which analysed 21,980 companies in 91 countries – noted that the biggest gains were unlocked when women held senior positions, such as chief financial officer, chief learning officer, and chief operating officer. Rather strikingly, companies run by female CEOs without other women in executive roles or on the board of directors did not perform better or worse than companies run by male CEOs.

“Women in positions of leadership are associated with superior corporate performance,” said Marcus Noland, PIIE’s executive vice president and director of studies. “The most important finding of the study is the importance of having a pipeline of women at the top”.  

PIIE examined 13,000 profitable companies which had a median net profit margin of 6.4% and found that the margin increased by more than one percentage point, or about 15%, when women filled at least 30% of leadership roles.

Despite the considerable benefits, many corporations lag behind in gender diversity in the executive ranks. Sixty percent of the companies reviewed had no female board members, and more than half had no female executives. More shockingly, less than 5% had female CEOs.

On the positive side, reform is slowly being introduced on a national level in many countries. “The relative dearth of women in corporate leadership positions is an emerging political issue. A number of countries, including France, Finland, Iceland, Norway, and Spain, have gone so far as to mandate female representation on corporate boards, and other countries are considering following suit. Several Asian countries are adopting similar policy responses, setting workforce gender balance targets, [and] quotas on corporate boards and political leadership roles,” noted the PIIE report.

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