The Business Case

“Forget China, India and the Internet: economic growth is driven by women”

The Economist, 12 April 2006

Gender Balance is a business opportunity….

…not a women’s issue. Too often in the past, it has been portrayed as such. However, there are several compelling business reasons why companies should concern themselves with supporting their female employees to reach their full potential. Here are just two of them:

Firstly, women form half the talent pool and are increasingly better educated than men. The retention of that talent in a world where good candidates for senior positions are in short supply, and ensuring that talent is not being wasted by working far below its capability makes sound business sense.

Secondly, a number of reports have demonstrated a positive correlation between the number of women in senior management or at board level and its success in the marketplace. A 2004 report by Catalyst found that, for Fortune 500 companies, the difference between Return on Equity (ROE) and Total Return to Shareholders between the group of companies with the lowest representation of women on their top management teams and the group of companies with the highest representation was +35% and +34% respectively – see Figure 1 below. A further Catalyst study in 2007 found that Fortune 500 companies with 3 or more female board members enjoyed an 83% greater Return on Equity than those with the fewest.

Business Case Figure 1a

Business Case Figure 1b

Figure 1 – Source – Catalyst 2004

This was backed up by a 2007 report by McKinsey, which showed that companies with three or more women on their senior management teams outperformed those with none on nine criteria of organisational excellence – See Figure 2 – and that companies that scored highest on these nine criteria were likely to have higher operating margins than their lower ranked counterparts.

Business Case Figure 2

Analysis conducted on sample of 58,240 persons employed by 101 companies around the world, given the sample size, a 1% difference is statistically significant

Figure 2 – Source – McKinsey 2007

A study at Columbia University from 1992 to 2006 demonstrated a positive correlation between Tobin’s Q, (a financial ratio), return on assets, return on equity and female participation at senior management level.

There are a number of other studies that indicate that a critical mass of women at senior level is positively associated with a company’s performance.

Why the dearth of women in Senior Management?

It’s not a lack of ambition. Another 2004 Catalyst study of senior executives found that the majority of women and men have equal desires to be CEO. It also found that women who have children living with them are just as likely to desire the corner office as those without children living with them. However, women report facing a multitude of stereotypes and challenges that their male counterparts do not and women have more trade-offs and adopt more strategies to achieve balance than their male colleagues. The assumption that women are leaving for family reasons does not always bear up – Deloitte discovered this in a study that ascertained that 90% of the women they assumed had left for family reasons were actually working elsewhere, in more woman friendly environments. Eagly and Carli speak of the labyrinth which women must negotiate to progress, when men just have to push a door on a linear path. Of course there are exceptions, but in general: Men who do not meet the requirements for roles are more likely to apply than women who meet most of them; Women don’t ask and they don’t publicise their achievements and aspirations – they assume that someone will notice and reward their hard work; For men, there is a positive correlation between success and likeability, for women, the opposite tends to hold true. The latter can be due to the fine line women must walk between retaining their femininity and being measured against traditional paradigms of leadership. Further Catalyst studies in 2005 and 2007 have found that stereotypical impressions that women “take care” and men “take charge” are not borne out in actual behaviour of managers, that gender is not a reliable predictor of how managers will lead, and that stereotypes result in female talent being underestimated and underutilised.