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Study: Firms with Women in Leadership Positions More Profitable

By:
Chris Gaetano
Published Date:
Feb 10, 2016
WomenLeadersA new Ernst and Young study, conducted by the Peterson Institute for International Economics, has found that a firm's profitability is positively correlated with the number of women in senior leadership positions. The study, which examined nearly 22,000 public and private companies across 91 different countries, looked for companies with 30 percent or more female representation in C-suite positions. It found that, when looking at already profitable companies, those with at least a third of the leadership roles filled by women had, on average, a 1 percent higher net margin rate compared with an otherwise similar firm with no female leaders at all. 
 
"By way of comparison, the typical profitable firm in our sample had a net margin of 6.4 percent, so a one-percentage-point increase represents a 15-percent boost in profitability," said the study. 
 
This effect becomes even more pronounced when considering firms both profitable and not: in this case, those with more women leaders had an average 6 percent net profit increase, double the 3 percent sample median. Finally, firms that went from having no women leaders at all to 30 percent female leadership had a 15 percent increase in net revenue margin. 
 
The study did not give a firm reason why this might be so, but it suggested that companies that are less discriminatory have a performance edge, or that having more women in C-suite positions means companies can access a more diverse set of skills. 
 
In order to take advantage of these effects, however, companies must do more than make a few token hires. The study found that, for example, the gender balance of a board of directors alone has no impact on firm profitability. It also found no significant performance differences between male and female CEOs. What's needed, according to the study, is a more holistic approach that improves diversity within top corporate positions overall, not just in a few key positions. 
 
"This pattern underscores the importance of creating a pipeline of female managers, not simply getting women to the very top," said the study.