The Issue Of Gender Diversity Commerce Essay


The issue of gender diversity has widely captured popular imagination in all fields. The breaking of the proverbial glass ceiling with respect to women and careers has raised newer and more pertinent questions. How does the presence of women in top management affect the working of an organisation? Does that make the organisation more effective? It is widely acknowledged that women are more risk averse than men. So does the risk-avoidance create problems of its own, or is it beneficial for the organisation?

The focus of this paper is to address the above questions. We do not intend to dwell on the difficulties women face in getting a place for themselves in the top echelons of organisations, but to study the effectiveness of ensuring gender diversity in the boardroom. Women are approximately 50 percent of the labor pool and influence over 70 percent of household spending in the United States and similarly in other places worldwide. It's just smart business to include women in the decision-making process, and companies should implement strategies that set targets and timetables to do so. Lastly and more important, we want to explore the female advantage - whether keeping more women in a firm creates an advantage for the firm by making it more profitable; which is one of the most important purpose of business.

Women and business performance

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Several studies till date have linked greater gender diversity in senior positions with financial success. This mounting body of evidence represents an important twist in the debate over women in business. For decades, women's advancement had been seen as an issue of fairness and equality but now some researchers are looking at it in a new light : as a smart way to make money.

European firms with the highest proportion of women in power saw their stock value climb by 64 percent over two years, compared with an average of 47 percent, according to a 2007 study by the consulting firm McKinsey and Company.

Measured as a percent of revenues, profits at Fortune 500 firms that most aggressively promoted women were 34 percent higher than industry medians, a 2001 Pepperdine University study showed.

And, just recently, a French business professor found that the share prices of companies with more female managers declined less than average on the French stock market in 2008.

There is also now data and studies to prove that more women in leadership mean better bottom-line performance. 'As per a McKinsey study, a higher percentage of women in management lead to better wages and higher stock prices at a company. '

Fortune 500 companies with the most women at the top have a 35 percent higher return on shareholder return to equity

a Catalyst study showed boards with more than three women on them have an 83 percent higher return to shareholder value than do boards without women.

The numbers are certainly striking, but their meaning is not yet fully understood. Correlation does not equal causation: While the link between higher levels of female leadership and profits is fairly well-established, it's less clear that women are directly responsible for the success. Rather, companies of a particular kind - forward-thinking, adaptable - may both turn higher profits and promote more women. And some of the data on women's influence are mixed. One recent study, for example, found that the presence of senior women just below the CEO led to higher profits - but the effect of female CEOs was neutral or slightly negative. And if the high-level women do directly cause better performance, it is not entirely clear why.

The possibilities that could be are:

One is that women enjoy an edge in understanding the consumer market: by some estimates they make 80 percent of consumer purchases.

Another theory is that gender diversity stimulates more vigorous discussions, resulting in smarter decisions.

Women on average exhibit a different, and fruitful, leadership style.

Some analysts even suggest that perhaps greater gender balance in decision making would have produced a different outcome than the current financial crisis. The culprits, one can't help but notice, were male dominated management teams. More women at the table, some speculate, might have served as a prudent counterweight to reckless, excessive risk taking men. In fact, Iceland has dispatched a team composed largely of women to clean up after its collapse.

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"Psychological research suggests that women are somewhat less willing than men to take extreme risks."

Generally men's leadership style is task oriented while women's management style is characterized as more relationship-based that aims to encourage and empower. Putting the two together provides a more balanced mix.

University of California-Irvine professor emeritus Judy Rosener says brain scans prove that men and women think differently. At age 79, Rosener says she's concluded that a company with a mix of male and female leaders, with their differing attitudes regarding risk, collaboration and ambiguity, will outperform a competitor that relies on the leadership of a single sex. Female board members usually understand, better than men, how to appeal to women as consumers and as employees. "Also, because women are acculturated differently from men, they tend to listen more and see problems and solutions differently from their male colleagues." In many ways this expands and enhances board discussion and deliberation

"Women ask questions that men don't think to ask, because women come from a completely different environment and vantage point."

We do not mean that companies would boom if dominated by women. Companies should not expect that simply putting more women in corner offices or on boards will automatically improve performance. Certain opinion experts are in fact wary of the quotas that are being put on the minimum percentage of representation of women in their management boards. Norway even has a law requiring that women constitute 40 percent of board members.

As per the paper "Women in the Boardroom and Their Impact on Governance and Performance", in the Journal of Financial Economics, the research findings indicated that gender diversity has significant effects on board inputs. Women are less likely to have attendance problems than men. Furthermore, the greater the fraction of women on the board is, the better is the attendance behaviour of male directors. Holding other director characteristics constant, female directors are also more likely to sit on monitoring-related committees than male directors. In particular, women are more likely to be assigned to audit, nominating, and corporate governance committees, although they are less likely to sit on compensation committees. Women also appear to have a significant impact on board governance.

Direct evidence was found that more diverse boards are more likely to hold CEOs accountable for poor stock price performance: CEO turnover is more sensitive to stock return performance in firms with relatively more women on boards.

Although the correlation between gender diversity and either firm value or operating performance appears to be positive at first inspection, this correlation disappears once we apply reasonable procedures to tackle omitted variables and reverse causality problems. Our results suggest that, on average, firms perform worse the greater is the gender diversity of the board. This result is consistent with the argument that too much board monitoring can decrease shareholder value. Thus, it is possible that gender diversity only adds value when additional board monitoring would enhance firm value. Using additional tests, we find that gender diversity has beneficial effects in companies with weak shareholder rights, where it is plausible that additional board monitoring can enhance firm value, but detrimental effects in companies with strong shareholder rights.

A study by Roy Adler, a professor at Pepperdine University in Malibu, California, tracked 215 Fortune 500 companies, comparing their financial performance to industry medians. He found that "companies that smash the glass ceiling also enjoy higher profits." In a recent Harvard Business Review article presenting his findings, Adler showed that "the companies with the highest percentages of female executives delivered earnings far in excess of the median for other large firms in their industries." The Canadian Conference Board findings support those of Adler. It tracked the financial well being of firms with two or more women on their boards in 1995 to see where they stood six years later. It found that firms with women board members were much more likely than companies with all-male boards to be leaders when ranked by revenue or profit. While these two studies do not a theory make, they suggest there is a relationship between the presence of women on boards and financial performance.

Women and ethics:

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The governance argument

Perhaps the strongest argument for having women on corporate boards is that their presence often improves corporate governance. Women board members have said their presence changes the conversation, not only do sexist language and jokes disappear, but the number and type of substantive issues which are considered is broadened.

In May of 2002, The Conference Board of Canada published findings of a major study they did of women and corporate boards. These findings suggest a strong link between female numbers on boards and good-governance credentials. The researchers found that 94% of boards with three or more women (compared to 58% of all-male boards) insist on conflict-of-interest guidelines; that more female than male directors pay attention to audit and risk oversight and control; that women, more than men, tend to consider the needs of more categories of stakeholders and; that women, more than men, tend to examine a wider range of management and organizational performance. The findings reveal that 72% of boards with two or more women conduct formal board performance evaluations, while only 49% of all-male boards do; that companies that provide boards of directors with formal, written limits to authority have a greater percentage of women directors than do organizations with no formal limits to authority and; organizations that provide boards of directors with formal orientation programs have a greater percentage of women directors than do organizations with no such program.