The Business Case For Women In Leadership

March 5, 2022

After all, one would expect any fair, moral, and highly functioning nation to have little reason to exclude half of its citizens from being fully active members of society, or restrict economic opportunities to just 50% of the population (which alas doesn’t stop 104 countries in the world from doing so).

—Dr. Tomas Chamorro-Premuzic

The gist:

Why do we have to make a ‘case’ for women’s leadership…when we don’t have to do the same for men—who are in 60-95% of global leadership roles?

The Stats: The business case for…men?

• 65% of employees would happily refuse a pay rise so long as they could replace their boss

• 75% of people quit their jobs as a direct consequence of their boss, which makes managerial incompetence the number one cause of turnover in the world

• Meta-analytic studies indicate that toxic bosses have a pervasive negative influence on employees’ turnover, salary, and productivity, and that people "quit their bosses, rather than their jobs”

• 84% of workers report persistent stress and anxiety problems caused by their bosses

• Fewer than 20% of boards feel confident of effectively addressing their leadership problems

• Up to 70% of executives fail within just 18-months of taking their role

• Even in democratic countries approval ratings for heads of state (180/195 are male) typically hovers around the 40% mark.

The Stats: The business case for women

(1) Although having more women on boards or top leadership teams boosts firm performance, some studies suggest that a critical mass is needed for this effect to occur. For example, studies have found that unless you have at least 30% female representation, there will be no significant benefits of having more senior female leaders. Equally, an analysis of 90 US banks during 1999-2015 (a period that included the global financial crisis) indicates that female participation in boards boosts firm performance once a minimum threshold of female board members has been achieved. It also seems that high-performing firms are much more likely to benefit from higher female representation, as this analysis of 3,000 US firms between 2007-2014 shows.

(2) Even when studies show that firms with a higher proportion of women in senior leadership roles perform better, they report that in those same studies women earn significantly less than men. The effect can be somewhat mitigated when a critical mass of women reach senior leadership roles (as per point 1), but it generally still persists. This is evidence for the weak connection between merit and compensation, particularly across genders.

(3) One of the benefits of having more female board directors is that they add a new range of skills, and diversity the background, of the boards (as shown, for instance, by a large-scale analysis of 1,500 top S&P firms between 1997-2013). Another benefit, as reported in a French study of nearly 400 firms between 2001-2010, is better monitoring and oversight ability.

(4) Women leaders don’t just improve financial performance metrics, they also de-risk firm performance (for example, by reducing the likelihood of lawsuits, reputational scandals, and corporate crime), and improve CSR and ESG (for example, by decreasing the chance of environmental infringements). Firms with more women on their boards are more likely to disclose their greenhouse emissions, as shown in a study of publicly listed Canadian firms between 2008-2014. As The Economist recently noted, women are generally less corrupt, and more moral, than men, and since power corrupts, and toxic leaders destroy teams, organizations, and nations, few traits are as critical to leadership potential as integrity ("corruptio optimi pessima"). For every Elizabeth Holmes, there are many Bernie Madoff’s, Jeffrey Epstein’s, Adam Newman’s, Harvey Weinstein’s, and Jeffrey Skilling’s, etc.

(5) Firms with a higher proportion of women in their boards tend to invest more in innovation and be more innovation. For example, a recent study found that a 10% increase in female representation in boards was associated with a 7% increase in innovation patents and citations. A deeper analysis of the underlying mechanisms to this association revealed that firms with more female board members are more likely to put in place accountability and oversight processes to effectively manage innovation. Likewise, a large study of 18,547 firms in 15 developing countries reported a positive link between female representation in firm ownership and management on the one hand, and innovation output on the other. Research on founders and start-ups indicates that despite no significant gender differences in entrepreneurial potential female entrepreneurs continue to face tighter credit availability, and higher interest rates, than men do

(6) The ROI for gender equality has not just been evaluated "top-down" (vis-a-vis balancing leadership roles), but also "bottom-up" (examining wider access to jobs and gender parity in employment). The Economist and McKinsey Global Institute estimate that "if the gender gaps in participation, hours worked and productivity were all bridged, the world economy would be $28.4 trillion (or 26%) richer".

(7) Beyond the measurable benefits of women in leadership, psychological research highlights a female advantage in leadership, which I have highlighted here. For example, women are more qualified than men, outnumbering and outperforming them in college. This is a big reversal from the 1960’s, and points to the higher qualifications and better hard skills women bring to the table. This means that instead of encouraging women to emulate men (e.g., telling them to fake confidence, or apply for jobs even if they are not qualified enough), the best way to increase female representation in leadership roles is to select leaders on competence. Equally, if we selected leaders on the basis of their humility, self-awareness, emotional intelligence, self-control, and integrity - and filtered out leaders with high psychopathy, narcissism, and Machiavellianism scores - we would end up not just with better leaders, but also more female than male leaders.

And this:

When, in 1970, Milton Friedman noted that the only ‘social responsibility of businesses is to increase its profits’, few would have been interpreted his words as a feminist statement.

Connect with the (O so fabulous, Dr. Tomas Chamorro-Premuzic ’s) Forbes post here.