By Covering Business March 14, 2012
Although there are more women in managerial jobs today than ever before, the highest rungs of the corporate ladder are still dominated by men. Women remain underrepresented in upper management and on boards of directors. In 2006, less than one third of the companies in the S&P 1500 employed a woman in any top managerial position. Less than 3% had a female chief executive.
When hiring executives, boards of publically traded companies should be primarily motivated by value because they have a fiduciary responsibility to act in the best interest of their investors. So if women were found to add significant value in upper management, that might raise questions about the competence or motivation or most boards.
In 2008, researchers at the University of Maryland and Columbia Business School decided to look into whether the presence of women in upper management affected a company’s financial performance. Here’s what they found:
• Companies with women in top management do a significantly better job of adding value to book assets than companies without them do. (The researchers report a midpoint value added of $42 million.) The same holds true for returns on assets and equity.
• Placing a woman in a top management position adds gender-specific value only to the degree that companies are focused on innovation (e.g. spending more on research and development).
From the report:
“We find that, ceteris paribus, a given firm generates on average 1% (or over $40 million) more economic value with at least one woman on its top management team than without any women on its top management team and also enjoys superior accounting performance. Moreover, while the benefits of female representation in top management are increasing in the innovation intensity of a firm’s strategy, even firms without any significant emphasis on innovation do not experience impaired performance as a result of female representation in top management. Thus, our results suggest that even CEOs who believe their firms have gender-neutral recruitment and promotion processes should ensure that their firms maintain at least some level of gender diversity in top management.”
Read the full paper (PDF).
