Companies with Female Leaders Have Higher Returns on Equity

By By Thomas K. Arnold January 11, 2016
Companies with women in top leadership positions are more financially successful than companies run by men.

At least, that’s the lesson implicit in a November 2015 report from MSCI, a New York City-based research-based index and analytics firm. Companies with “strong female leadership” generated an average return on equity of 10.1 percent per year, compared to an average of 7.4 percent for those without top women leaders.

The study, which examined more than 4,200 companies between December 2009 and August 2015, is in sync with a September 2014 report from Credit Suisse that also found a link between companies with more female executives and higher returns on equity—as well as higher valuations, stronger stock performance and higher payouts of dividends. The Credit Suisse report was based on a database that tracks the gender mix of about 28,000 executives at 3,000 companies in 40 countries.

Diana Bilimoria, KeyBank Professor and Chair of Organizational Behavior at Case Western Reserve University’s Weatherhead School of Management, isn’t surprised.

“Our organizations need women leaders,” she said. Ample research, she added, “shows a correlation between the presence of women in top governance and leadership roles and organizational performance, philanthropy, and corporate social responsibility.”

Bilimoria is considered an international expert on women in leadership. She has won large grants to study the issue and to help women develop as organizational leaders. She believes female leaders tend to bring about better results at companies because they practice “inclusiveness,” making each employee feel “authentically valued and respected and … engaged in achieving a shared vision,” according to an article she wrote on the human capital and social capital characteristics of women and men selected for leadership positions.

“Research indicates that women leaders use more transformational leadership styles and are more communal—that is, concerned about developing and supporting individual employees and the team,” she said. “These are the elements of being a more-inclusive leader.”

Despite evidence that having more female leaders is a recipe for business success, female CEOs are still in the minority. According to Boardroom Insiders, a San Francisco company that maintains a database of in-depth profiles of C-level executives, only 19 of the Fortune 500 CEOs (3.8 percent) in 2015 were women. Other Fortune 500 C-suite positions have a greater percentage of women, including chief financial officers (10 percent) and chief information officers (16 percent), but women are still, by far, the minority in these leadership positions.

“We are making progress, but it is slow,” Bilimoria said. “At the current rate of progress, it will take a very long time—literally decades—before equity is achieved. The reasons for this slow change are complex and involve societal, organizational, interpersonal and individual reasons.”

Catalyst, a New York City-based nonprofit organization with a mission to expand opportunities for women in business, says on its website, “High-potential women advance more slowly than their male peers, in terms of both career progression and pay, even though they employ career management strategies similar to men’s. Organizations that neglect this critical talent-management issue risk lagging their competitors in attracting, developing, and retaining the best candidates to serve as the next generation of leaders.”

A 2011 news release from Catalyst underscored other findings from MSCI and Credit Suisse: Companies with more women in top leadership positions, on average, far outperform those with fewer female leaders; companies with more female board directors are likelier to have more women in senior leadership positions five years later; and companies with more women in senior leadership positions practice more corporate philanthropy and likely also have higher-quality corporate social responsibility initiatives.

Sharon Gillenwater, founder of Boardroom Insiders, said that her company has uncovered a few patterns about female C-level executives. First, many women who advance to the C-suite were heavily involved in sports in their school years and still pursue a variety of athletic pastimes as hobbies. Being accustomed to competing and working in teams from an early age could contribute to success, she said.

Other female leaders come from families of entrepreneurs or corporate executives, where business was discussed every night at the dinner table. Examples of this include sisters Denise Morrison, president and CEO of Campbell Soup, and Maggie Wilderotter, executive chairwoman of Frontier Communications Corp. Their father, an AT&T executive, talked to his four daughters while they were still in grade school about setting profit-margin goals. Their mother taught them that ambition was a part of femininity.

And still others started at the bottom of the corporate ladder, moving up only after a key mentor recognized their talents, boosted their confidence, offered advice and helped them advance. Perhaps, Gillenwater said, this is why female leaders tend to put a big emphasis on mentoring.

Thomas K. Arnold is a freelance writer based in Carlsbad, Calif.


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