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Aspen Opinion

Gender Diversity

September 8, 2015

The business case for gender diversity is still not appreciated despite the wealth of research in support of it.

The Business Case

The business case for diversity is intuitive given the gender split of the population but it would also appear irrefutable given the wealth of research and data in support of diversity in the workplace. Such research demonstrates empirically that companies that hire and retain more women not only are doing the right thing but can also gain a competitive advantage.

A number of studies point to superior performance from those companies with high diversity levels. For example, a recent McKinsey study underpins the business case with the finding that companies in the top quartile of gender diversity were 15 percent more likely to have above median financial returns relative to their national industry median.1 These companies also had a greater probability of having an above average EBITDA and valuation. Moreover, companies across all sectors with the most women on their boards of directors significantly and consistently outperform those with no female representation – by 41 percent in terms of return on equity and by 56 percent in terms of operating results. The study also found that the under-representation of women in senior roles and at board level impacted the governance and reputation of companies as they failed to attract and retain the widest possible pool of talent.

Research also focuses on the benefits of gender diversity in encouraging a culture of creativity, innovation and organisational flexibility and as an enabler for a more responsive strategy through closer alignment with an often diverse customer base. Most important, perhaps, is the value in terms of better decision making. Diversity of thinking is vitally important to success and gender mix is a key element in guarding against "group-think" in organizations or, in other words, pointing out when "the emperor in fact has no clothes". As a result, companies who promote diversity of thought can better understand and navigate ever more complex trading environments.

UK Initiatives

There are a number of initiatives in the UK aimed at trying to effect real change in gender diversity including Women on Boards (Davies Review), The 30% Club, Catalyst, The Mentoring Foundation and The Women's Business Council. Initiatives such as these have prompted tangible progress, moved the debate forward and resulted in these issues being given real consideration.

The headline numbers look more encouraging with, for example, women now making up 25 percent of the members of boards of FTSE 100 companies.2 Although the UK has certainly come a long way - it is ahead of, for example, Japan where two percent of corporate boards comprise women - it is still some way behind the 34 percent of corporate boards in Norway although this has been boosted by the introduction of a mandatory quota for publicly limited companies.3

However, in terms of executive board representation, the underlying picture is less positive as only 9 percent of executive directorships are held by women in FTSE 100 companies.4 With the recent attainment of the 25 percent target, improvement of representation at the executive directorship level is now the focus with a weak pipeline seen as a crucial vulnerability. It will be difficult to maintain achievements to date, let alone make further progress unless this is strengthened. In terms of international comparison, Japan is again the laggard (two percent) while in Sweden women account for 21 percent of executive boards.5,6

Much has been achieved in a short time - the last all male FTSE 100 board only appointed its first woman director in June 2014 - but such progress needs to be built on firmer foundations if it is to truly succeed over the longer term.7

Pipeline Progress

There has been a sharper focus in recent years on non-executives and gender diversity and while this should be welcomed, much more can and should be done to focus on the executive pipeline; if this is done effectively, an increasing number of female board directors should automatically follow.

Advocates of gender diversity have been quick to speak out in support of this view. For example, last year Antonio Horta-Osório, Chief Executive Officer of Lloyds Banking Group, announced the objective of adding almost 1,000 women to the bank's top tier of 8,000 managers by 2020. Only recently, Ross McEwan, Chief Executive Officer of Royal Bank of Scotland, made a public commitment to have at least a 30 percent female representation in the 600 executive jobs that make up the top three layers of the bank's management. This target has been made a formal objective of the bank's executive committee and the plan is to achieve this within five years.

Best practice would suggest that companies that are the most successful in promoting and fostering gender diversity view this issue as a core element of their corporate culture, and that chairmen, CEOs and executive committees will have a significant impact in introducing change. Lord Davies, former Minister of State, Chairman of Standard Chartered PLC and author of the government backed independent reviews of Women on Boards, advocated that chairmen should become "obsessed" about the female pipeline in their organization. This calls for robust talent recruitment, talent management (including mentoring), succession planning and performance management processes, and tailored development programs that acknowledge and value women's leadership styles.

I believe that the willingness to acknowledge that gender differences are very real and that women’s leadership styles are different offers the ability to make demonstrable progress. It is not that women are less skilled, less qualified, less ambitious, less willing to sacrifice or less experienced which stops women from being more equally represented on all rungs of the corporate ladder. The disproportionately small amount of women in senior positions may lie within the fundamental differences that exist in terms of the way women and men think and relative levels of self-confidence which can result in women being less willing to take on new roles, less willing to take risks and less willing to self-promote.

Finally, work-life balance is, perhaps, the toughest topic to embrace since it encompasses those "career hinge" moments, including having the ability to make the choice to have a family without compromising a woman's potential to be promoted to more senior and executive positions, as well as childcare issues. Affordability of high-quality childcare is a real concern. Ways need to be found to make work time and career flexibility not just words but a reality. Reacclimatizing programs following a career break are one solution but more ingenuity is needed to stop the female talent pool being diminished through mid-career departure.

Success in Stretching

Corporate and institutional support is a necessary but not sufficient condition for true gender diversity. Crucially, women must take responsibility for managing their own careers, specifically where they want to go and how to get there. It does not mean a solo journey but building a network of advocates and mentors to help. Mentoring – both formal and informal – can be extremely powerful and so building a good network of contacts, both in-house and externally, is important to help identify and create opportunities. Last, but not least, women should not be fearful of taking on more risk, for example through "stretch" assignments. The 70:20:10 learning and development model may well apply with 70 percent of career success arising from "stretch", 20 percent from mentoring and 10 percent from traditional learning. If women want to succeed they must take an active role but companies must also "lean in"!


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References

  1. McKinsey & Company, Diversity Matters, November 2014
  2. 30% Club, Men and women working together for real change, August 2015
  3. Women in Parliament and Government, SN1250, 17 July 2014
  4. Cranfield University, Women on Boards Davies Review Annual Report 2015
  5. Women in Parliament and Government, SN1250, 17 July 2014
  6. Ibid
  7. Financial Times, Glencore appoints first woman director, 26 June 2014

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