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How much do US companies who have gender diverse leadership teams outperform the average?
Hi there! Thank you for your question on how much do US companies who have gender diverse leadership teams outperform the average. The short version is that, based upon recent publicly available data on the US companies and gender diversity, US companies with the highest representation of women in leadership roles perform better on average 2.7% higher ROE, and have an increase of 0.3% EBIT margin for every 10% increase in the number of women in senior executive teams. Below is a deep dive into my research and methodology.
METHODOLOGY
To answer your question, I began my utilizing Wonder's resources, researching articles that have been added to our databases. Thereafter, I expanded my research to Google, specifically seeking research studies and reports as well as respected news articles and journals that address the topic of "gender diversity and corporate performance." I focused on accumulating literature that directly and indirectly addressed this topic in relation to US companies. What I found was that the majority of publicly available reports and articles appear to focus on worldwide data, or focused on North America as opposed to the US. Still, within these reports, it was possible to find some useful data that was US-specific.
Perhaps the most significant results that emerged from Wonder's resources and my various Google searches were references to the McKinsey report "Diversity Matters" (published in 2014 and updated in 2015) and the 2016 Morgan Stanley report “Putting Gender Diversity to Work: Better Fundamentals, Less Volatility.” These two reports, although drawing from data worldwide, offer specific data on the impact of women in leadership roles in companies in the US. There were other relevant articles that offered additional insight. More recently, however, news articles have referenced the above-named reports.
RECENT DATA: US COMPANIES & GENDER DIVERSITY
In general, articles and reports from the past 7 years have theorized and claimed that gender diversity is both necessary and profitable for companies worldwide.
The above-mentioned Morgan Stanley's 2016 report provides quantitative analysis that brings credibility to the importance of gender diversity, and notes that "a company's percentage of female employees is positively correlated with its return on equity." The report finds that gender diversity has meant:
- Worker satisfaction, and
Regarding innovation, in a 2013 report, Catalyst reported that, in the US, mixed-gender information technology (IT) patent teams created patents that "were cited 26 to 42 percent more frequently than the average." Moreover, having more women in leadership roles, i.e. being on boards, companies experienced fewer governance-related controversies and higher ESG risk management ratings.
In a Morgan Stanley 2015 report on women on boards, it was found that US companies had fewer women on their boards in comparison to European companies. However, US companies were more likely to have women CEOs or CFOs--approximately 16.9% of US companies on the MSCI USA Index had a female CEO or CFO. Furthermore, women directors (C-Suite) were more likely than male directors to have advanced educational degrees.
- ROE
Specific to return on equity (ROE), the 2015 Morgan Stanley report found that MSCI Index World companies that have significant numbers of women in leadership position tend to have an average annual ROE of 10.1% versus the 7.4% of those that do not.
Furthermore, in a 2016 article, Morgan Stanley stated the following: "companies with more diversity tended to have a higher level of forward one-year ROE, on average 0.7% better than their regional sector peers and 1.1% above those with low representation of women in the workplace." (Graph: Average ROE over the Next 3 Years by Gender Diversity)
- EBIT
However, the above-mentioned 2014/2015 McKinsey report noted that, although US companies have made efforts to increase the number of women in leadership positions, for US companies to reap the benefits of having gender diversity, women must "constitute at least 22 percent of a senior executive team" Still, even with such a change, the impact is somewhat low: increase of 0.3% in EBIT margin for every 10% increase in gender diversity. For the US, racial and ethnic diversity has been shown to have a far greater positive financial impact.
In general, however, the McKinsey report shows that companies with higher gender diversity outperform companies that don't by 15%.
FINAL ANSWER
Publicly available US-specific data is somewhat limited in scope. However, based upon the recent reports discussed above, we can infer the following about US companies:
US companies with the highest representation of women in leadership roles perform better on average 2.7% (10.1% - 7.4%) higher ROE, and have a increase of 0.3% EBIT margin for every 10% increase in the number of women in senior executive teams.
OTHER RESOURCES OF INTEREST
-- Older report: 2007, "Companies With More Women Board Directors Experience Higher Financial Performance, According to Latest Catalyst Bottom Line Report"
CONCLUSION
To wrap it up, based upon current US data, it appears that for companies to see any significant positive impact from gender diversity, companies must invest in increasing the percentage of women in senior executive positions (to at least 22%). There is evidence that higher gender diversity does lead to companies outperforming those that do not. Thank you for using Wonder! Please, let us know if we can help with anything else!