Women in the C-Suite Tied to Increased Profit

Multiple news outlets brought attention to a recent study conducted by the Peterson Institute for International Economics and EY, formerly known as Ernst & Young. Through analysis of close to 22,000 firms from 91 countries, authors Marcus Noland, Tyler Moran, and Barbara Kotschwar found that women’s presence in corporate leadership correlates with higher profit margins for their organizations.

Financial Impact of Gender Diversity

Overall, their study pointed to a dearth in female leadership. As the authors Noland and Moran wrote in Harvard Business Review, “Almost 60% of the participating firms have no female board members, and just over 50% have no women in the ‘C-suite.’” Combined, approximately one-third of the companies have no women in the C-suite or board positions.

Despite the consistent lack of female executives in large organizations, Marcus Noland told Bloomberg, “Women in positions of leadership are associated with superior corporate performance…The most important finding of the study is the importance of having a pipeline.” According to the study, a shift from no female leaders to 30% representation positively correlates with a 15% increase in net revenue margin.

How Female Leaders Impact a Company

The authors found that in contrast to the impact of women in the C-suite, a female CEO without any other executive women or board members does not make an impact on growth margins. Women board members also don’t have the same correlation to financial impact as females in C-suite, but they can encourage a gender balance among executive leaders

Noland and Moran hypothesize two ways that more female senior leaders transform profit margins in Harvard Business Review.

  1. “Increased skill diversity within top management, which increases effectiveness in monitoring staff performance, they write.”
  1. “Less gender discrimination throughout the management ranks, which helps to recruit, promote, and retain talent.”

Both possibilities confirm the conclusion that to effectively manage a successful, dynamic companies, you benefit from a higher ratio of women in the C-Suite.

Differences Across Companies, Sectors, and Countries

The wide range of countries and sectors examined in the report bring new conclusions about geography, industry, and gender in corporations. The authors found that in certain countries — Norway, Latvia, Slovenia, and Bulgaria, women made up 20% of the board members and senior executives. While in Japan, female representation hovers at 2% for participation on boards and 2.5% in the C-suite.

Countries that exhibit high scores on math assessments, focus on management degree programs, and offer lower gender wage gaps correlate with higher rates of female leadership. Specifically, The Guardian points out, “Countries that reported more gender equality had 11 times more paternity leave days than the bottom countries.” By placing the responsibility for childcare of both genders, these organizations paved the way for more female leadership.

The authors also analyzed the role of company characteristics in fostering female leadership. Financial services, healthcare, utilities, and telecommunications were — by contrast — more welcoming to female leadership than basic materials, technology, energy, and industrial companies. Companies with openness to foreign investment, “which could be interpreted as greater tolerance for new ways of doing business,” lack of discriminatory societal attitudes, and strong family leave policy included more female executives.