Women in leadership can boost profits by up to 15%

Posted on October 23, 2016

In the aftermath of the Brexit vote and David Cameron’s resignation, many expected Boris Johnson to form Government. However, it was Theresa May that was ultimately invited by Her Majesty to do so. Mrs May is only the second female British Prime Minister in 469 years.

It is a similar story across the Atlantic. The US elections are in full-throttle and if polls are to be believed, Hillary Clinton will become their country’s next President. If she does, she will be the first woman in 239 years to hold the role.

Across the G20, only two women (or 10%), Angela Merkel and Theresa May, are elected leaders (three until the impeached demise of Brazil’s Dilma Rousseff). Globally only 17 leaders (just over 8.5%) are women from 196 countries.

Women are under represented in both elected and appointed positions.

Perhaps what is most shocking about these statistics is that we do not appear to be shocked. It seems that, even in the 21st century, the unequal ratio of male:female leaders is accepted. 

One might imagine that this dismal ratio is not reflected in the business world. Not so, according to a recent Harvard Business Review article Study: Firms with more Women in the C-Suite Are More Profitable. The Peterson Institute for International Economics surveyed 22,000 companies across the world.  Whilst the results were higher than the number of elected female leaders, they certainly were not representative of the female portion of population.

Just over 50% of surveyed companies have no C-suite women and almost 60% did not have female board representation. Less than 5% had a woman Chief Executive, despite finding that the biggest positive impact on business results comes when women hold C-suite roles. There was some variation by industry: for example, representation was higher in financial services, telecommunications, health care, and utilities, but less so in energy, industrials, and technology.

Perhaps reading this you are thinking ‘so?’ Well, aside from the obvious need for female role models, the business itself is more profitable if women hold leadership roles.

The same Peterson survey analysed profitable companies with an average net margin of 6.4%. They found that companies that went from zero to 30% share of women in corporate leadership experienced a 1% increase in net profit. This equates to a 15% profitability boost in a typical company. That is a substantial improvement and one worth seeking.

The findings were not that women under or outperformed men, but that they bring diversity to management and decision making, which in turn enhances monitoring of staff performance, which in turn helps to identify and retain talent. The key message is that companies that identify and retain talent well outperform companies that don’t.

This message is slow to get through. A McKinsey report on women in the US economy found that men are promoted on potential, while women still tend to be promoted on the basis of their past achievements. 

The question is how can companies enhance the number of women in senior roles and gain the associated impact on the bottom line?

Some answers lay in the path women have to travel before reaching the workplace that require socio-economic-political solutions, such as changing the notion that girls are princesses and boys are strong, improving the quality of education, improving access to all career opportunities, reducing discrimination, and so on.

Once women reach your workplace, improving women’s access to the opportunities within companies to position for and reach senior management is something over which the organisation has control.

Start with when women enter your company. Take the time and invest the resources to identify their individual potential using objective psychometric diagnostics and assessment centres. Based on their qualifications, experience, and potential, provide career guidance and design development plans that meaningfully enable performance within the company.

Development plans are not just cost-based activities, such as training, but should include such activities as special projects, job rotation, observation, acting on higher duties, collaboration activities, listening tours, and mentoring. Access to a mentor is a particularly powerful way to support female employees. It is best if an individual finds their own mentor, but forward-thinking companies are investing in cross-organisational mentoring programmes to ensure it happens. This is becoming very popular within the UAE, with many companies formally training mentors to support mentees.

As careers progress, access to management and leadership development is also required. Many companies still view this as filling heads with knowledge through business school-based training, but ignore the leadership behaviours required to use that knowledge in an actual work setting. This could usefully include aspects such as building personal brands, creating impact, and overcoming cultural barriers. Female mentors (those that have ‘made it’) are few and far between, particularly in the UAE, so the development is critical.

In her book, Lean In. Women, Work, and the Will to Lead, Sheryl Sandberg recognises that women may choose to work or to have a family or to have both and that the choice is personal, though for most women they remain the one with primary responsibility for managing the family. The Peterson research found that if companies made it easier to balance the two through workplace flexibility and meaningful leave policies, then those companies are more likely to reap enhanced organisational performance.

Lean in.jpg

Companies in the UAE are not prevented from providing benefits and conditions that are supportive of women and families, as the Labour Law provides only a baseline for employees. With an eye on the bottom-line improvement you can develop policies that support such things as flexible timings, work from home, additional paid and unpaid maternity (and paternity) leave. Consider creating jobs and opportunities that align to school terms. The options are limited only by your company’s creativity.

Clearly, addressing the challenges is more complex than can be solved within the constraints of this article and offering some solutions is not an attempt to simplify the issue. They key point is that companies can perform better by having women in top roles and, when women still earn around 83 pence to each pound of their male counterparts, it is also the right thing to do.

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