The gender of your CEO and your bottom line

Women hold just 4.4% of CEO positions at S&P 500 companies, and this number is set to drop when Carol Meyrowitz  steps down as CEO of TJX Companies, Inc. and moves into the role of executive chairperson.  Looking globally, just 8% of companies with revenues of at least $500 million have a female CEO.  Here’s the thing – the dearth of women in leadership positions is not just an issue of equality; it is also one of economics.  When women are in positions of leadership, companies perform better – much better.

Female CEOs in the Fortune 1000 drive three times the returns as S&P 500 enterprises run predominantly by male CEOs (Quantopian). Large companies with a higher proportion of women on executive committees realized a 41% higher return on equity and 56% better operating results than companies with zero women on executive committees (McKinsey & Company). And companies with three or more women board directors in five years significantly outperformed those with sustained low representation by 84% on return on sales, 60% on return on invested capital, and 46% on return on equity (Catalyst report).

A 2012 study estimated that raising women’s workforce participation to the same level as men’s could raise per capita GDP in the US by 5%.  Looking on a global scale, Forbes contributor Elizabeth MacBride points to Jessica Schnabel, the global product head, Banking on Women at the International Finance Corp., who puts forth that the world’s GDP would be 5-15% higher if women were full participants in the business community.  A question I have is: what would this number look like if it focused on the impact of having more women in leadership positions rather than at participation across the business community?

The “Women Effect”

Jason Baron, US Trust, is one person who has taken note of this body of research.  Baron “uses an unusual metric for sizing up stocks: women.” According to Bloomberg Business, Baron’s Women & Girls Equality strategy is paying off.

500 Startups Founder Dave McClure is also focusing on gender: “I am a greedy ‘bleep’ bastard … and I am investing in the only remaining undervalued assets, women and minority-led companies.”

However, Baron and McClure are in the minority.  Generally, action is not being taken to exploit the findings of “the women effect.”  Sharon Vosmek, CEO of Astia Funds, notes that only about 5% of total venture investment goes to women-led businesses despite data showing that the odds of start-up success increase by as much as 2% for every 10% increase in C-suite or board-level women.  Vosmek states the obvious: “It’s stunning to me that the industry doesn’t seem to act on this data.”

Stephanie Marton, management consultant at BCG, echoes Vosmak and makes the point that the lack of action runs counter to action markets usually take when it comes to findings: “When research uncovers a source of competitive advantage, well-functioning markets generally reflect the new-found knowledge.  For instance, when analysts began to report that university endowments performed better with a focus on longer term asset classes (the David Swensen approach), fund allocations followed the learning.  In the case of the ‘woman effect,’ we have yet to see leaders fully exploit the findings.”

Looking beyond the economic data, and putting aside equality, there is another reason, perhaps the “simplest” as to why we need to bring more women into leadership positions.  Washington Post columnist Ana Swanson writes: “When you draw from a smaller pool of people, you miss out on a lot of talent. Women are 50.8 percent of the population. Would you rather select your executive team from a pool of 100 people, or from 49?”

Ambition and Culture

The good news for companies and for the economy is that women actively want to be in leadership positions.  A McKinsey & Company survey found that female respondents’ career ambitions were just as high as those of their male peers.  Looking specifically at responses from senior executives, “women are more likely than men to strongly agree that they have top-management ambitions and want to advance in their organizations.”

The same McKinsey & Company survey found that “strong CEO and top-management commitment” and “corporate culture and mind-sets that support gender diversity objects” are perceived to be the most important drivers for increasing gender diversity at the top.  The study authors note, “Along with our earlier research and experience, the latest survey results confirm that there is no single way to make change happen; companies need a whole ecosystem of measures. However, change starts at the top—and respondents recognize how important this leadership support is.”

Cathy Morris, senior vice president and chief strategy officer for Arrow Electronics, Inc., has a similar perspective.  Earlier this year, I spoke with Cathy Morris about the dearth of women in the supply chain and about her rise to success within a male-dominated industry.  In our conversation Morris shared how the support of leaders within Arrow enabled her to move from corporate controller to CEO.  “Change,” Morris states, “comes from the top down.”

The Way Forward

The way forward hinges on creating a new dialogue about women and leadership – a dialogue that is not focused on equity, but rather one that is focused on economics and the business opportunities.  As Avivah Wittenberg-Cox, CEO of 20-first and author of Seven Steps to Leading a Gender-Balanced Business, puts it:

“Instead of continuing to discuss the problem, we ought to present solutions: roadmaps to businesses that are better balanced, arguments that help companies and managers understand and benefit from shifting global gender balances. The shift is away from wondering what is wrong with women who don’t make it to the top, and towards analysing what is right with companies and leaders that do build gender balanced leadership teams – and tap into the resulting competitive edge.”