Companies with gender-diverse senior leadership teams get higher profit margins: Research says

April 9, 2022

While government enforced quotas have led to higher participation of women on boards over the last decade, without these quotas for senior management teams, women are being left behind in C-suite representation.

The gist:

The study, titled Beyond Lip Service: tracking the impact of the gender diversity gap, based on global data of 2500 large cap companies in 30 countries, over a period of more than a decade. And it showed that: boosting female representation in senior management teams results in higher profit margins and better company performance.

The analysis showed a clear correlation between greater diversity and better company performance.

That means C-Suite and Senior Managers are also drivers of higher Company performance.

Why quotas?

While the benefit of quotas for women on Boards , “is evident in the higher proportion of women on boards in markets where minimum levels are mandated.” The “proportion of women in senior management” however, “lags in nearly all markets where there are no such requirements for gender balance.”

This means for one that:

‘Globally, investors are missing out because they are not recognising [sic] the performance advantage of companies with more gender diversity in leadership,’ and that, ‘the gender diversity premium has not yet been priced in by the market, meaning that investors who can identify companies with higher diversity, especially in senior management, may generate higher investor returns compared to the benchmark.’

In addition, said the Study co-author, Dr Ron Guido, “Analysis shows that quotas are more effective than disclosure in boosting female representation – although both are important.”

The Stats:

• Companies with more gender diverse senior management teams generated cumulative return-on-equity almost 30 per cent higher than companies with less gender diversity over a 5-year period.

• Investing in “high diversity firms” relative to “low diversity firms” can potentially generate an annual return premium of 2. 5 per cent for diverse boards and a 4 per cent annual premium for diverse senior management, the data shows.

With these numbers more visible in investors’ minds, it puts pressure on these companies to do better beyond the board.

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