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Reviewing the Research: Can Women Leaders Improve Corporate Performance?

With corporate annual meeting season underway, we have returned to our close analysis of corporate boards and their composition, as well as executive team compensation. These analyses are influenced by our strong belief that diversity in many forms—in this case, gender diversity—is crucial not only to a more inclusive and sustainable society, but also to the long-term success of companies and their investors.

Connections between gender-diverse leadership and the success of public companies are well-documented. A respected McKinsey report, now in its fourth iteration in 10 years, has shown increasingly wide performance gaps between companies with the most and least gender-diverse leadership. In its 2023 release, the report showed that companies in the top quartile in terms of leadership gender diversity outperformed those in the bottom quartile by 39%. That gap has increased in every year McKinsey has released its report, from 15% in 2015 (based on 383 companies in the analysis), to the most recent 39% spread, which is based on fully 1,265 companies now being analyzed.

A Boston Consulting Group (BCG) diversity and innovation survey found that companies with above-average leadership team diversity scores reported “innovation revenue” that was, on average, 73% higher than companies with below-average scores, as a percentage of total revenue. Since innovation revenue came from products and services launched within the prior 3 years, such companies may rightly anticipate a bright future. Gender was one of the most impactful diversity dimensions in the study.

Another survey, the global enterprise survey from the International Labor Organization (an agency of the United Nations), suggests that companies with gender-balanced boards are nearly 20% more likely to experience “enhanced business outcomes.” Past MSCI research has indicated that companies with “strong female leadership” enjoyed significantly higher return on equity (ROE) than those without. And among the key findings from a late 2023 collaboration between As You Sow and DiverseIQ, which compared public Equal Employment Opportunity data to a range of financial performance indicators, was that companies in the Financial sector specifically saw a drag on financial performance relative to the gap between the representation of women in the overall workforce and executive leadership.

Despite the many sources that have found connections between representation of women in leadership and corporate financial performance, others have sought to question their conclusions. For instance, a 2021 paper highlighted that the oft-cited McKinsey study shows correlation, rather than causation, and questioned McKinsey’s method of using names and faces to measure diversity among executives. But more recent research suggests causation could be context-dependent: in countries or industries where gender-diverse leadership is accepted as a norm, companies with a higher percentage of women leaders tend to be more productive than others.

Many academic studies of board gender diversity have also been inconclusive on its impact on financial performance. Even in these cases, however, authors generally acknowledge the underlying benefits of gender diversity that could ultimately influence financial performance, however indirectly. Such benefits include higher-quality work, stronger decision-making, and increased employee satisfaction. Others point out the ways all leaders can learn from women leaders: by prioritizing competence over confidence, acknowledging limitations, motivating through positive, rather than negative, reinforcement, and mentoring and elevating others. In a model of business performance that includes impacts on all stakeholders, such qualitative benefits become invaluable.