FEATURE5 November 2020

Proof of concept

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Research by Australia’s Bankwest Curtin Economics Centre has suggested a causal relationship between increased female leadership and businesses’ financial performance. By Rebecca Cassells.

Woman in office looking out of a window at cityscape

It could be the most compelling case yet for Australian companies to raise their game when it comes to gender equality and women in leadership: the data shows it literally pays to have women at the top.

The Bankwest Curtin Economics Centre (BCEC) has analysed company data collected by the Workplace Gender Equality Agency (WGEA) and discovered that the glass ceiling that prevents women from holding high-level jobs is also holding back Australian companies and the return on investment for shareholders.

Having more women in senior leadership roles, sitting on boards and as chief executives leads to better profitability, productivity and performance for companies, the analysis found.

According to our research, if an Australian ASX-listed company increased the number of women in key leadership roles by 10 percentage points, it would enjoy a significant boost – a 6.6% increase in its market value, worth the equivalent of $104.7m.

The research also shows that an increase in female representation on the boards of Australian ASX-listed companies leads to a 4.9% increase ($78.5m) in market value – while a female chief executive will mean a company is 12.9% more likely to outperform its rivals across three or more standard company performance indicators, including dividend yield.

How can we prove that women are the driving force? 

Several critical steps need to be taken when trying to identify a causal relationship between female representation and company performance. To do this, we use multivariate regression, including two-way panel fixed effects applied to longitudinal data to draw out a causal inference. We also incorporate a number of controls and other steps in our methodology, to make sure we are able to isolate the impact women in senior leadership are having on company performance.

We control for other company characteristics that also influence business performance, such as the size of the company and the sector in which it operates. We also make sure intrinsic differences between individual companies’ approaches and attitudes towards gender diversity in leadership are controlled for, and we strip away business-cycle effects that impact on company performance across sectors of the economy.

We make sure a company’s performance is compared against benchmarks within its own industry sector, knowing that firms often operate in sectors that differ systematically, both in terms of the share of women in leadership and in business performance expectations. Most important is the requirement to relate prior changes in female representation to subsequent changes in business outcomes.

These steps go to the heart of the strategy to identify a causal relationship between increasing women in leadership and company performance – and all are made possible because the WGEA reporting data is longitudinal and we can observe the same company over time. This is one of the most stringent modelling approaches that can be applied.

Why do gender-diverse companies perform better? 

Greater representation of women in senior leadership positions brings a greater diversity of thought and strategy when targeting business growth and boosting value for shareholders. Increasing the number of women in senior leadership positions effectively expands the ‘brainpower’ available, leading to a wider array of solutions to problems and deeper debates.

Women also tend to work more collaboratively and run businesses more democratically. This management style promotes sharing of key information and greater collaboration, leading to enhanced decision-making and better business operations.

A 2015 study questioned whether the global financial crisis would have occurred if Lehman Brothers had been Lehman Sisters. By examining gender diversity at 300 large US banks over the global financial crisis, they found that banks with more gender diversity performed better, because of female directors’ stakeholder-orientation and strong corporate social responsibility (CSR) measures.

Around 30% of board positions in Australian companies are now held by women. However, nearly 30% of Australian companies still have no female board representation, and a similar share have no women in senior management.

Policies are in place to enforce quotas or targets in women’s board representation in many countries across the world, with 30% or 33% as the baseline. Some countries have taken stronger action, legislating for a share of at least 40%. Lifting the proportion of women in leadership can only happen if companies focus on the goal of achieving gender equity in progression and commit to specific actions to drive change.

Our research findings demonstrate clearly that gender equality is not just a matter of fairness, but also a business imperative. More women as key decision-makers will deliver higher dividends for a company and its shareholders.

Female representation had the following impact, according to this study: 

  • Appointing a female chief executive increased a company’s value 5% and likelihood of outperforming of sector benchmarks by 12.9%
  • Raising female board representation increased value by 4.9% and outperformance by 6% 
  • Increasing the number of women in management positions resulted in a company’s value rising 6.6% and outperformance by 5.8%

Both measures fell when female representation was reduced at board or management levels. 

Rebecca Cassells is deputy director at the Bankwest Curtin Economics Centre

This article was first published in the October 2020 issue of Impact.