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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.

10 Best Tech Jobs For 2016
10 Best Tech Jobs For 2016
(Click image for larger view and slideshow.)

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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kstaron
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kstaron,
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?
Broadway0474
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Broadway0474,
User Rank: Ninja
2/17/2016 | 11:12:57 PM
Re: women executives
David, you might be stretching the connection between Germany, Japan and WWII. They both have militaristic streaks in their culture, and perhaps very strong tendencies when it comes to bowing to authority. One of my favorite memories as a young adult was traveling to Germany and jaywalking --- those folks will not cross the street unless the little white man on the lamp tells them to! But do those tendencies equate to extreme gender bias, even misogyny?
David Wagner
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David Wagner,
User Rank: Strategist
2/17/2016 | 11:19:34 AM
Re: women executives
@Broadway- Right. I'm not sure why that happened. It is obviously out of the scope of the study to break it down by country. Perhaps it is strange echo from World War II since Japan and Germany both have this problem? That's total speculation, but perhaps the social and economic realities that allowed women into the workforce were different back that far and we still see it today? Or maybe I just picked up on a coincidence.
Broadway0474
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Broadway0474,
User Rank: Ninja
2/16/2016 | 11:36:15 PM
Re: women executives
David, no one would argue with you that more progress needs to be made in the US. No doubt that Europe would be the place that would put us to shame --- as it does in many other categories (healthcare, quality of life, etc.). But Germany? I am surprised that Germany isn't more enlightened on the female corporate leadership issue. Wow!
David Wagner
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David Wagner,
User Rank: Strategist
2/16/2016 | 2:42:21 PM
Re: women executives
@jastroff- There is always more work to do. The authors hope to broaden the study and hope to track change over time. That would hopefully lead to more cause and effect answers. The current scope of the study is just not broad enough for that.
David Wagner
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David Wagner,
User Rank: Strategist
2/16/2016 | 2:40:43 PM
Re: women executives
@Broadway- Well, it depends on how you measure progress. The US is well behind most European countries in terms of female executives and board memebers. Though there exceptions (Germany, for example). 

When compared outside of Europe, the US is better, but not as good as you'd think. Japan is probably the worst when it comes to female executives and board members. It is so bad there that they have mad "womenomics" a part of theit economic strategy. They are making active efforts to encourage more female leadership.

But really, if you check out some of the charts in the paper attached you can see our numbers really aren't impressive globally. 
Brian.Dean
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Brian.Dean,
User Rank: Ninja
2/15/2016 | 11:06:30 AM
Re: women executives
You are right. According to the World Bank, in certain regions of South Asia the proportion of population that completed grade 5 was 67.2% for males and 46.7 for females. The future will reflect these proportions in the work force and entrepreneurial activities -- it is a vicious circle. Nevertheless, MOOCs might be able to break the circle. 
Broadway0474
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Broadway0474,
User Rank: Ninja
2/15/2016 | 8:58:12 AM
Re: One possible explanation
@technocrati, aren't you swinging the stereotypes the other way now? Certainly not all men are unreasonable, and not all women are reasonable. No matter diverse your leadership, you still have to pick good leaders.
Broadway0474
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Broadway0474,
User Rank: Ninja
2/15/2016 | 8:35:49 AM
Re: women executives
Internationally, I would think the hopes of progress are far dimmer. The US is still pretty progressive for diversity and gender issues in the workplace versus most other regions, no?
Brian.Dean
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Brian.Dean,
User Rank: Ninja
2/15/2016 | 4:50:06 AM
Re: women executives
If the labor force increases then, the economy produces a higher level of output. Overtime, the pay gap will decrease because individuals will gain experience and/or education that are in greater demand in the workplace. I wonder if it will take a very long time for this to play out in a global setting.
Page 1 / 3   >   >>
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