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Companies with women in leadership roles crush the competition

June 20, 2016
Diversity & Inclusion

“Women do not participate in the global economy to the same extent as men do,” according to a study on gender diversity in corporate leadership.

But that doesn’t mean women shouldn’t participate more.

The study on gender diversity by Marcus Noland, Tyler Moran, and Barbara Kotschwar for the Peterson Institute for International Economics released earlier this year says there is a positive correlation between the presence of women in corporate leadership and performance “in a magnitude that is not small.”

It is hard to nail down the exact performance bump a woman’s presence can lend a company, only around half of the companies studied had any women leaders at all. But, having a woman in an executive position does lead to better performance, and the more women the better, according to the study.

The study points out that diversity in general probably leads to higher performance. A single female CEO doesn’t perform better than her male counterpart when controlling for gender in the rest of the company, but a higher rate of diversity throughout the organization has an impact.

The Peterson Institute study is one of the largest on gender diversity, as it looks at 21,980 firms in 91 countries. But it’s not the only one to be released recently that points out the benefits of female leadership.

The “Women on Boards” study performed by MSCI is more concrete in declaring the benefits of gender diversity.

“Companies in the MSCI World Index with strong female leadership generated a Return on Equity of 10.1% per year versus 7.4% for those without,” the study states.

Like the Peterson institute, MSCI says that just having a single woman on a board does not necessarily lead directly to more profits. The study suggests that at least three women are needed for their voices to be heard, and for the dynamics of the board to change “substantially.”

The study also referenced other previous research, summarizing a few of the most salient points:

“One study using mathematical modeling concluded that groups of randomly selected problem solvers outperformed groups of high ability problem solvers because the latter group’s greater ability is more than offset by their lack of problem solving diversity.”

“Informational diversity among a group improved performance, according to field research; the more complicated the task that required interdependent work, the more pronounced the effect of diversity.”

“While homogeneous groups felt more confident about their decisions than diverse groups, the former groups’ decisions were more often wrong compared to those of diverse groups, according to one study.”

Despite the evidence of these and other studies, the percentage of women in leadership roles is still frustratingly low, and it isn’t changing.

“Growth in the percentage of women directors is growing glacially in markets – such as the United States – where regulatory mandates to improve representation do not exist,” the MSCI research says.

MSCI suggests that 30% female representation in leadership roles is “attainable without imposing an undue burden on companies.” Boards are expected to hit that 30% number by 2027, but it could be accelerated with conscious efforts to improve diversity, according to MSCI.

Sheryl Sandberg, Chief Operating Officer at Facebook, is well known for championing gender diversity. She sums up the effects women can have on a company pretty succinctly.

” Endless data show that diverse teams make better decisions. We are building products that people with very diverse backgrounds use, and I think we all want our company makeup to reflect the makeup of the people who use our products,” Sandberg said to USA Today in 2014.

“That’s not true of any industry really, and we have a long way to go.”

By Seth Archer

Source: The Independent

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