3 Ways Promoting Diversity in the Boardroom Matters

In honour of International Women’s Day on the 8th of March, find out why gender balance in the boardroom is pivotal to increased company-wide success.

The 2019 boardroom agenda should include tackling board composition and narrowing the gender gap. Yet, what is the best way to make this a realistic expectation, according to experts?  Businesses need to begin by treating gender diversity ‘like the business priority it is’. By doing so, real change can gather momentum.

3 Ways Promoting Diversity in the Boardroom Matters

Appointing more women to executive positions means acting now. Larry Fink, CEO of renowned asset manager firm, Blackrock, noted in his 2018 letter to CEOs that “boards with a diverse mix of genders, ethnicities, career experiences, age and ways of thinking have, as a result, a more diverse and aware mindset”. He added that perhaps the most important outcome of this diversity for boards is that, “they are less likely to succumb to groupthink or miss new threats to a company’s business model”.

Find out three key ways promoting women within and outside of the boardroom means greater profitability, productivity and stronger long-term growth creation.

 1: Profitability 

According to a 2017 McKinsey & Company data set, gender diversity is correlated with profitability. Studies from Applied Economics Journal of the CAC400 companies in France and from the Peterson Institute for International Economics  also confirm this, with the latter study highlighting that companies who increase the number of women in executive roles to 30%, experience a 15% increase in profitability for a mid-size firm. McKinsey also reported that companies who were in the top quartile for gender diversity present 15% stronger profit margins above their national industry competitors.

 2: Productivity 

An MSCI study in 2018 found that average employee productivity growth was higher for companies that employed three or more women at board level between 2012 and 2016 than those who had one or no female directors. This study also found that overall, firms with more women on boards with stronger human capital policies showed higher productivity growth overall.

Global companies like BHP have voiced their commitment to gender initiatives by setting ambitious targets to ‘achieve gender balance’ throughout their company by 2025. Their argument encapsulates an important point: productivity. They argue that a more diverse workforce has ‘lower injury rates, better engagement, adheres more closely to work plans and is more likely to meet production targets’ a result. An MIT 2010 study correlates this evidence and notes that women in teams contribute greatly to increased productivity. It also found that ‘teams with more women outperformed teams with more men’ which could be partly explained by their stronger intuition when measuring ‘complex emotional states’ at play within the team.

 3: Long-Term Value Creation 

 Another reason why it is imperative to appoint more women to executive positions is long-term value creation. That is to say that companies have in place strategies that focus on sustainability, sustainable operations, new technologies and changes in business models, to name a few. Long-term value creation as evidenced above is not only enhanced by the promotion of women to leadership positions but also a necessary part of ensuing long-term value creation.

According to Spencer Stuart, studies consistently outline that greater numbers of women are ‘disappearing at each successive level of most organizations’. This is negatively affecting potential company performance and sending mixed messages to women within leadership roles. The executive search consultancy group advocate that for companies wishing to promote greater gender diversity in the boardroom and cinch long-term value creation must:

  • Have strong support from the CEO and executive leadership steams
  • Minimize bias during the employee assessment process
  • Lend women support from the beginning of their tenure in the boardroom

By doing so, real progress for both gender diversity and company processes are in plain sight.

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