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February 20, 2016 Practice Points

The Connection Between Female Leadership and Corporate Financial Results

By Emily J. Bordens

The New York Times recently reported on a study of nearly 22,000 publicly traded companies in 91 countries showing that women in company leadership lead to stronger profits. The study (Study), published by the Peterson Institute for International Economics, a nonprofit group based in Washington, and EY, the audit firm formerly known as Ernst & Young, found that despite the apparent economic benefits, many corporations are still lacking in gender diversity. For example, almost 60 percent of the companies reviewed had no female board members, more than 50 percent had no female executives, and just under 5 percent had a female chief executive.

The Study revealed that the highest correlation with increased profits was in companies with women in top management positions, as opposed to companies with a female as the chief executive (showing that female CEOs did not significantly underperform or over-perform when compared with their male counterparts) or those with increased female board membership (showing some, but not a significant increase). In fact, the data suggested that an increase in the amount of women in top management positions from 0 to 30 percent could be associated with as much as a 15 percent rise in overall profitability.

The results of the Study further suggested that more needs to be done to foster a “management pipeline of women” by, for example, the early development of mathematical and other relevant skills in school-aged girls. The more women in business at the entry-level, explains the Director of the Petersen Institute, the increased chance that more will make it to the very top level.

The Study did not find any evidence that “quotas” for women in executive positions (like in certain European countries like Norway, Denmark, and Finland) are having any substantial influence on bottom lines. Ultimately, the Study suggests that instituting supportive policies involving education, childcare (flexible schedules), and against harassment and discrimination would have a greater impact on achieving gender diversity and allow more women to “make it to the very top.”

Keywords: woman advocate, litigation, corporation, gender diversity, corporate leadership