By Ian J. Cook

It has long been known that there is a need for a larger proportion of women in organizational leadership positions. Recent findings from research by McKinsey and the universities of Columbia and Maryland are indicating that increasing the number of women in your executive suite is a source of competitive advantage leading to higher profit margins and increased market valuations. The business case for women in leadership has taken a big step forward.

The research by McKinsey[1] focused on nine key organizational attributes that previous work has shown to be positively correlated with higher operating margins (EBITDA[2]). Their work has proven that organizations who achieve higher scores in areas such as leadership, accountability, direction, control and innovation will create more profit per dollar than their counterparts. 
 

The McKinsey research included over 231 organizations involving 115,000 employees and found that those organizations with three or more women in the senior management team scored higher than average on every one of the nine attributes. By linking these two findings it suggests that organizations with more than three women in the C-suite will be more profitable than those who do not.

What is not clear from the research is whether this impact is causal. For example, is it that better organized companies, with higher profitability have more women or does having more women cause these organizations to be better organized and more profitable? The fact that the women in question are at the most senior decision-making level within the organization suggests that their contribution is linked directly to the improved organizational performance. As the women are key agents in shaping and driving the performance of their organizations it is hard to argue that they do not create the better results.

The research[3] done at the University of Maryland and Columbia University strongly supports the assertion that having more women in top leadership positions leads to superior organizational and financial performance. The researchers in this study who followed 1,500 US companies for a period of 14 years, finished in 2006. Their findings showed a strong positive correlation between Tobin’s Q’s[4], return on assets and return on equity measures and the participation rate of women in top management positions. The studies’ authors state that they found “at least indicative evidence that greater female representation in senior-management positions leads to—and is not merely a result of—better firm quality and performance.”

The study of HR is fraught with such findings. The intangible nature of measuring the effects of a social system with its intricate dynamics and ever changing networks makes definitive answers problematic. What is appropriate in this field of study is to consider multiple studies and to build a body of evidence for outcomes that are more likely than others. (Unfortunately HR researchers do not have the budget to build a Hadron Collider to find out if a theoretical quantum entity actually exists or not.)

The authors of the McKinsey study also highlighted an important intangible benefit relating to their findings: If an organization targets an increase in the ratio of women in leadership positions it will be able to tap into a significant and under-utilized talent pool at a time when talent is becoming increasingly scarce.

If the business case is there to support an increase in more female senior leaders, what steps can you take to increase the number of women who participate in leadership within your organization. It was worth noting that the organizations in the study that had three or more women in their senior leadership group had not achieved this position by accident. They had carefully crafted policies, measures and processes to enable women to develop their full potential.

The first key activity identified is to review your people policies and ensure that they do not unintentionally make it hard for women to participate in key learning activities or gain broader work experience. For example one organization broadened the age range for identifying “high potentials” recognizing that women in the 28 – 35 age range are often balancing work and the early stages of motherhood. Through this they were able to identify and nurture far more talented women through the various stages of their employment relationship. The second is to create learning processes or groups that fit more with the work-life balance needs of this group as well as developing mentoring connections. The third is to include measures and accountabilities to track how well the first two practices are supporting your organization to develop women to their full potential.

Of course the unstated component of this process is that senior leadership must see the need and actively champion a shift to support women’s development. Pointing out that not only will such a program provide some relief from the existing recruitment challenges but done well it can make your organization more effective, more profitable and more valuable should help to generate this buy in.

Ian J Cook is the director of HR knowledge and research at BC HRMA. Ian is using his global HR consulting experience and business knowledge to grow a function which delivers informative, relevant and timely comment.