Women Execs Boost Company Profits, Study Finds - InformationWeek

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Women Execs Boost Company Profits, Study Finds

Companies with more women in executive positions correlated with increased profitability, according to a new study.

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Increasing gender diversity in technology companies has been considered an ongoing challenge by many, and now a recent study by the Peterson Institute for International Economics and sponsored by EY (formerly Ernst and Young) shows that it isn't just a social justice issue, but a matter of economics. The study found that companies with women in executive leadership roles can see substantially better profits, and offered some insight into a few practical ways that tech companies and CIOs can improve gender diversity to see increased performance.

The study looked at 21,980 publicly traded companies from 91 different countries in 2014 to determine the number of women in CEO roles, C-level positions, and on the board of directors. It found that across the study, nearly 60% of companies had no female board members, and nearly 50% had no female executives. Fewer than 5% had female CEOs. It also found that tech companies had one of the lowest rates of female executives by industry, with only energy and industrial companies having a lower rates.

The study found no statistical evidence of female CEOs performing better or worse than male CEOs, and it only found minor connections between female board members and better performance. However, the study found very robust connections between female executives and profitability. It found that for profitable firms, going from no female leaders to 30% was associated with a 15% rise in profitability.

(Image: IntoConnection via Youtube)

(Image: IntoConnection via Youtube)

The study did not attempt to explain why companies with women in executive positions correlated with increased profitability, but the authors suggested that it was possible that bringing a broader range of skills leads to better performance. The authors also wrote of a "pipeline effect" where women in leadership roles attract and inspire women to eventually perform similar roles.

Marcus Noland, executive vice president and director of studies at the Peterson Institute for International Economics, said in a phone interview with InformationWeek that, "We have also done studies on sports. If you have lots of high school and middle school girls participating in sports, you generate more female coaches. And if you generate more female coaches, you generate more female executives in sports like athletic directors, general managers, and heads of committees and organizations."

That pipeline effect is one of the reasons why Noland said he believes that the study can be extrapolated to the CIO level as well. While the study could not drill down below the C-level, Noland said that CIOs would get better-performing IT departments if they were more gender diverse. "What we've captured is the tip of the iceberg," Noland said, "because this is what the data permits."

Noland said he hopes to get more funding to study the data set over more years (both back in time and in the future), and to drill down deeper to see the value of more women in middle management.

[Want to find a company that already respects women? Try these. See 10 Trailblazing Companies for Women.]

One other important finding from the study was very eye-opening. It found that paternity -- not maternity -- leave strongly correlated with the female share of board seats. "It makes sense when you think about it," Noland said. "If you give men the chance to take part in raising children, women don't take on as much of the double burden of raising children and having a career."

Any company or leader that can help men become a part of the childcare process will help its female employees succeed. Noland was quick to point out that the study was on a global scale, so some of these issues require large-scale institutional or cultural changes to have a deep impact.

Finally, Noland gave a suggestion that did not come directly from the study, but might have a positive effect in tech companies and IT departments. He suggested adopting something that is known in the NFL as the "Rooney Rule." Noland pointed out that in the NFL, all teams must interview at least one minority candidate for every head coaching vacancy.

Noland said that even if a majority candidate is ultimately hired for the job, the interview often gets candidates on the radar for other positions. It also gives them practice and exposure to higher interviewing processes that might ready them for the next position. The NFL has recently expanded their Rooney Rule policy to require that women be interviewed for team executive positions.

However you bring more women into leadership roles in tech companies and IT departments, it is clear there is an economic incentive to do so. Bigger profits and broader skill sets are something you can't afford to ignore.

"One thing this study shows is that discrimination is alive and well," Noland said. "Discriminating firms pay for it. Non-discriminating firms can say, 'Hey, if people aren't hiring them, we will,' and they can gain an advantage."

What have you done to advance the cause of Women in IT? Submit your entry now for InformationWeek's Women in IT Award. Full details and a submission form can be found here.

David has been writing on business and technology for over 10 years and was most recently Managing Editor at Enterpriseefficiency.com. Before that he was an Assistant Editor at MIT Sloan Management Review, where he covered a wide range of business topics including IT, ... View Full Bio

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User Rank: Ninja
2/19/2016 | 5:05:12 PM
Re: women executives
I wonder how much of the pay gap is based on the maternity leave some women take when starting a family. As the study noted paternity leave, which means the woman can re-enter the workforce faster or have more support while re-entering slowly seemed to have a huge effect. It means women execs can get more years in to get to a higher paying more powerful position. Has anyone seen studies that differentiate women's pay based on if they took time out of their work career to raise a family or not?
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