Thought diversity is a vital element of long-term corporate value—uniformity in strategy and leadership directly counters innovation. Varied perspectives at the leadership level provide greater options with broader implication and heightened adaptability in an evolving marketplace.
“You could have eight people look at something, and the way they see it will be unique based on who they are, the way they see the world, their generation and their gender,” Doug Harris, CEO of The Kaleidoscope Group, says. “We’re talking about gender today, but we’re really talking about the power of having diverse viewpoints on anything, which brings great possibility to the table.”
The consequences of unequal gender representation in the global workforce are extensive, and they primarily branch off of the concept of heightened thought diversity. Women bring different approaches to leadership style, investment strategy, industrial design, conceptualization, management, delegation and mentorship amongst other functions assigned to those in leadership roles.
The ripple effect of introducing thought diversity to the boardroom, the C-suite and management positions is far-reaching. When a company limits itself to even the highest qualified population of a single subgroup—whether that be skill-based, education-based, experience-based or gender-based—the company is limiting its opportunity for growth and opportunity at every level.
2016 & Beyond: Gender Diversity at a Glance
“It makes sense and is now a best governance practice that different perspectives, backgrounds, experiences and skill sets increase the chances for better decision-making and in turn, better financial performance,” Meredith Miller, Chief Corporate Governance Officer of UAW Retiree Medical Benefits Trust says.
Considering the mounting evidence that diverse leadership produces greater returns, gender diversity in the C-suite and boardroom has become a more prominent item on the governance agenda: More than 75 percent of CEOs include gender equality in their top ten business priorities. Still, women continue to be grossly undervalued and underrepresented.
LeanIn.org and McKinsey’s Women in the Workplace 2016 shows that only 19% of women hold C-suite positions in more than 130 North American companies. Globally, there has been an increase in women CEOs in the Fortune 500 in the last 20 years, though the number of companies has fallen from 24 to 21 since 2014.
The global gender gap is one of the primary reasons women remain so far underrepresented in leadership positions. In 2016, only 59% of the economic participation gap has been closed globally—the lowest value measured since 2008. Achieving universal gender parity at its current rate will take approximately 170 years.
If women were to play an identical role in labor markets to that of men, as much as $28 trillion could be added to the global GDP by 2025, according to a study by McKinsey Global Institute.
It is comparatively easier to address the issue of gender diversity in the boardroom than at top management levels. While board seats can be added and departing board members may be succeeded, it is comparably much more difficult to add or replace high-level corporate leaders.
Profit Margin—How Women Affect the Bottom Line
Constructing a gender diverse C-suite has been closely tied to stronger profits. The Peterson Institute for International Economics and audit firm EY found a strong correlation between firm size, availability of paternity leave, and low levels of discrimination toward female executives. Additionally, an increase in women managers from 0% to 30% is associated with a 15% rise in profitability.
“There is quite a bit of data that supports links between diversity and financial performance, including studies that highlight different skill sets female directors bring to the table such as a focus on the long-term business strategy and expertise in risk and compliance,” Miller explains.
A study by automated hedge fund investment firm Quantopian shows that women CEOs produced 226% better equity returns than the S&P 500 as a whole over a 12-year period.
When Rachel Sheinbein, Managing Director and Co-Founder of Makeda Capital, first founded the gender-specific, impact-oriented investment firm in 2014, she recognized the effect low levels of female CEOs at Fortune 2000 companies would have on a given portfolio.
“I read so much research on women doing really well and I said, ‘You know what? Let’s stop researching and let’s make money on it,’” she laughs.
“If you invest in a typical fund or mutual fund, less than 4% of your portfolio has companies run by women, which, to us, really translated to a very unbalanced portfolio. We talk a lot about balancing your portfolio and in this way, it can really track down returns,” Sheinbein continues. “One of the reasons why people invest in our fund is because they can diversify with a better balanced portfolio.”
Higher levels of women leaders are affiliated with greater returns across the board, both literally and figuratively.
“The value of diversity is somewhere between immense and immeasurable!” Kit Addleman, a partner of Haynes and Boone LLP says. “I see both the benefits of diversity as well as the pitfalls of uniformity in each of my roles.”
As chair of the Board of Directors for the Girl Scouts of Northeast Texas, Addleman has seen firsthand how diverse boards result in increased company performance and revenue. In addition, she says, a diverse board may be better able to accommodate “tough situations.”
“If everyone in that board room has similar experiences and personality traits, the discussions are narrow and the conversations constrained in a ‘group-think’ way,” Addleman explains. “Boards with more diverse members, including varied backgrounds and genders as well as specialty areas and skills, engage in more robust discussions and explore a greater range of strategies and solutions.”
Research conducted by Grant Thornton estimates the opportunity cost of all-male executive boards was approximately $655 billion in 2014—about 3% of GDP in the UK and U.S. That same study concludes that diverse boards on S&P 500 companies outperformed non-diverse boards by about 1.91% in the United States.
Women continue to be underrepresented in the boardroom despite overwhelming evidence that diversity adds significant value. While the discrepancy may not be as severe as that found in the C-suite, there remain significantly low levels of women board members globally.
All but 16 of S&P 500 companies have women on the board. Similarly, 330 of the FTSE 350 and 176 of the CNX 200 have women board members. However, across all three indexes, only 127 of the 1,050 companies have women executives.
“Female directorships of S&P 1500 boards has changed little over the last two years,” Miller explains. “The search for new directors typically focuses on C-suite executives, of which women only make up 14.2%.”
While efforts to increase gender diversity in the boardroom may seem relatively stagnant, at least one Fortune 500 company has managed to create a women-led boardroom. When Navient went through a spin-off transition in 2014, the objective was to grow and diversify business, says president and CEO Jack Remondi. They created a top-down transformation strategy, starting with the boardroom. Today, six of 11 Navient board members are women, and women also chair the audit and compensation committees.
“We pushed ourselves to find the talent we needed, not just people we knew,” Remondi explains. “We tapped the services of a search firm that specialized in bringing forward skilled, experienced candidates of diverse backgrounds. In doing so, we found an abundance of driven and accomplished professionals—many of them women—ranging in age and professional expertise.”
Monetary Mentorship—Investing in Women Leaders
While an additional quarter billion women have been added to the global labor force over the last ten years, women’s labor force participation rate has decreased by about 3% since 1995 due to a lag in educational opportunities and a pattern of disadvantage, starting with a fundamental access to resources and at higher levels, a lack of mentorship for eligible young women.
”Ensuring a strong pipeline of women leaders includes providing junior female professionals good role models and growth opportunities,” explains Ellen Taaffe, Professor of Leadership and the Director of Women’s Leadership Programs at Kellogg School of Management. “The more inspiring senior-level women they see, the more they think, ‘I can do that too.’”
Taaffe has a number of suggestions to enhance the pipeline of women leaders, including formal and informal mentoring programs, ensuring diverse slates of candidates and providing senior-level women a platform to tell their stories.
The biggest advice she has, however, is to seek opportunities to gain P&L responsibility. “The reality is that women often don’t take or aren’t encouraged to take such opportunities, and P&L experience is something that companies and boards want in their executives and directors,” she explains. “I would not be on two public company boards today if I had not had P&L experience at PepsiCo earlier in my career. Try to position yourself for these opportunities, and take full advantage of them.”
Perhaps the largest role in creating women leaders comes, unsurprisingly, from men.
“I credit much of my success to my male mentors—men who didn’t care that I was a woman and were concerned solely that I did good work and made them look smart and prepared,” Addleman says. “Over time, as I demonstrated my skills and supported their efforts, I was given more opportunities and increasingly higher visibility. Of course, sometimes I had to ask for it!”
Addleman believes that past efforts for gender diversity, particularly at law firms and corporations, have been too focused on senior women mentoring and guiding young women with potential. “There are simply not enough women to do that effectively and it strains the ability of those mentors,” she explains. She encourages young mentees to include several men among their official and unofficial mentors.
“Power used to be about how much of it you can get, and power today is how much you empower other people. The new definition of power brings a whole new mindset to organizations,” Harris says. “They now have to create that diverse organization, give it power, maximize the power, and utilize all of the new possibilities and approaches to achieve bigger and better outcomes.”
Christopher P. Skroupa is the founder and CEO of Skytop Strategies, a global organizer of conferences.