There’s a lot of talk these days about gender diversity, equality, and inclusiveness. And some may actually question why it’s such a big deal when it comes to running companies and their bottom lines. Did you know that there is tons of empirical evidence linking gender diversity and profitability?
The study was extensive in nature and was conducted on 21,000 public companies in 91 countries. The conclusion? Interestingly enough, there were no material differences in profitability whether the CEO was a man or a woman. But there were stark differences when women were in executive leadership roles as well as members of the board. The study showed that when women represented upwards of 30% of the executive-level ranks, net profit margins were on average 6 percentage points higher, compared to similar businesses with no female leadership in place.
What the data seem to indicate is that having a pool of women in executive leadership speaks not only to having a more inclusive environment, but it also provides the opportunity for women to influence decisions using some of their natural, and documented, workplace strengths such as team-building, listening, multi-tasking, and the tendency to take a longer-term outlook on goals. Having more females as board directors as well as executives also can incrementally increase the chances of women moving up the proverbial corporate ladder.
Even earlier, a nonprofit organization called Catalyst, which focuses on expanding opportunities for women by pushing for workplace inclusion globally, conducted a landmark study of Fortune 500 companies. What they found in 2007 was eye-opening. Not only was there a link between gender diversity in the board room and profitability, but the differences were significant enough to give one pause. The findings were based on a four-year average of profitability for the years 2001 to 2004 and women board directors for 2001 and 2003. What the study showed was that companies with the highest percentage of women board directors outperformed those with the fewest women in the following ways:
- Return on equity: 53% higher
- Return on invested capital: 66% higher
- Return on sales: 42% higher
That is enough of a difference for corporate America to sit up and take notice!
Research indicates that companies with more women in senior management have higher returns on capital, lower volatility, greater client focus, increased innovation and greater long‐term orientation. As a result, I believe they should also deliver better stockholder returns over time.
Sallie—a woman I have long admired, having been at Smith Barney during her tenure—has taken this initiative to the next level by collaborating with Pax World Investments to tie investment performance to companies that have strong women leadership. The Pax Ellevate Global Women’s Index Fund is the first of its kind and allows investors to put their money where their heart is.