The economic impact of gender diversity on boards

Business News | 4 Sep |

Businesses across the globe support gender diversity policies in company operations and gender diversity on boards because of the effect that companies report. Gender diversity does not only improve the capabilities of a company board’s decision making and management but has a positive effect on the economic standings of those companies when these policies are enforced. Numerous corporations have agreed on the positive impacts that heterogeneous populations bring to the company. Statistical evidence published on international business studies demonstrates a company’s increase in value when gender diversity quotas are mandated in the corporation. Companies across the globe have undertaken gender diversity procedures to help capture the benefit of equality, boosting competitiveness in firm operations and strategy. The studies presented throughout this paper associate gender diversity to company output and production and show the positive impact seen with gender diversity within a board.

America’s attempt to remain economically competitive in the global business force is assisted through gender equality. When put in terms of a firm’s capability, both value and production of those firms have a direct tie into the economic aspect of firm success. Gender equality in the board room has been cited as a great strength to a company in the global economy. As the race for global success continues to remain relevant to companies participating in the world economy, companies must adapt their policies to incorporate new competitive strategies to gain full benefit. This paper explains the positive impact that female leadership has when mandated in company policies, as well as the economic development of those companies with gender diversity policies mandated and their bearing on the economic state of the country.

A greater portion of executive positions within companies around the globe has been filled by women in recent years. Gender diversity among a company’s board enhances performance and production capability. Increased firm performance has an undeniably positive impact on national production and ultimately promotes economic success in globally competitive markets. This report presents evidence from global enterprises outside of the United States, examining the implementation of gender diversity policies and their influence on the capabilities of the firms and provides a look at the current actions in place through American firms. Gender diversity enhances a firm’s performance through value creation. The policies in place in researched countries showcase the positive effect that implementing diversity has on a firm.

The paper is organized to present the economic hindrances that delay the progress of gender equality in society and illustrate the positive impact that gender diversity policies create.  The first section describes the background of gender issues in the corporate marketplace and existing gender inequality in the corporate sector. Research shows the lack of female participants in the global labor market in paid positions, suggesting a male-dominated paid employment field. Gender inequality and a lack of equal opportunities in the business environment are discussed.

Section two presents current gender diversity policies that have been implemented and their significance to economies all over the world, describing the capacity and influence of mandated gender quotas. California has recently signed a bill to combat the current inequality of gender on the board of directors by the end of this year. The paper examines current diversity programs in foreign countries that have made significant improvement towards effective gender equality in the business world. Results since implementation are discussed in relation to the boost of national gross domestic product (GDP) and growth of business enterprise.

The final sections assess the impact that gender equity programs bring to businesses and economies as well as feasibility of implementation. The impact is examined both economically and politically, to show a greater influence on the global workforce. In addition to the evaluation of gender equality in board positions, current policies are evaluated for their effectiveness after application within companies. Gender equity policies should be implemented in business operations; their usefulness in the current political climate is showcased to illustrate the growth opportunities that are being missed in the existing economy.

Through surveys, studies, and various demographic data the reports show a positive association between gender diversified boards and company success. The research presented throughout this paper investigates how the improvement of gender diversity can affect the corporate environment and eventually the global economy. The results prove that gender equality and diversity in the workplace generate a professional environment that positively impacts the economic success of individual firms and ultimately the nation.

Section 1: The Problem

The Glass Ceiling: Part of the Problem

Women are brutally under-represented in terms of the paid labor force, particularly among executive and high-ranking board positions. The present labor diversity policies in place put emphasis on the efficiency of low status jobs in the market mostly occupied by women. Women are fully equipped to fulfill the higher status jobs physically, mentally, and emotionally, yet American businesses do not take advantage of this opportunity. The higher status and higher paid jobs are still dominated by men. These higher-up jobs tend to shape the economic status of countries, fostering growth and change within the economy, and provide an international presence in terms of the global workforce. Women are still under-utilized in the paid workforce, yet account for 50% of the population. When corporate norms do not utilize the full capabilities of the workforce, the competitive advantage that a full labor force provides is lost. 

Participation of women on corporate boards has become a political trigger, creating a complex framework for successful firm organization. Long-standing structural obstacles in the corporate environment hinder the advancement of structural organization and equity enforcement within firms. Studies have proven the error that companies are making when women are not included in the corporate environment.

The old fashioned model for a corporate career has proven to be a deterrent in the modern world. The patriarchal assumption that women exist only as child bearers and homemakers still corrupts the decision-making process of corporations. Citing a conflict in women’s ability to manage a “work-life balance,” companies originally turned away from the idea of gender equality along the corporate ladder and implemented as little change as possible.

Current Corporate Environment and the Problem

In order to leverage within the increasingly complex economic environment, companies are forced to venture into new opportunities for increased sustainability and viability in the global market. The concept of gender diversity enforced within the firm and its impact on firm’s performance has been examined by ample research organizations. The occurrence of gender under-representation and inequality in the labor force is becoming more exposed among firms operations, in spite of the endorsement of gender equality from organizations. A growing recognition of the problem in the corporate environment has fostered a shift within the business sector. 

Though progress in gender equality has been made in both governmental and social sectors, corporate opposition stalls further progress.  Only 6.6% of Fortune 500 CEOs in the United States are women. Issues such as equal pay, family leave, and promotional opportunities are still concerns of corporate organizations though they have been shown to be red herrings. As these trivial concerns persist, the serious issue of gender inequality affects the success and longevity of American businesses. Their success in the economy, company growth, and recruitment opportunities are hindered by their refusal to address the issue of gender inequality. Even with the growth of representation of women on boards, the evidence of gender diversity in corporate America is severely underwhelming, begging for an answer to this dilemma.

Evidence from studies on gender equity programs shows production is not hindered when diversity quotas are mandated within businesses. Firms are limiting themselves and their capability by ignoring the benefits of diversity. Not only are corporate boards not acting in their own best interest, the companies are losing out on possible value growth by discriminating against women in the hiring process. By not hiring women, companies lose talent and harm their competitiveness. When the full capabilities of the work force are not being used, growth is stalled and success is not attainable.

The lack of inclusion women face in the corporate environment eventually impacts the global economic environment. At the most basic level, inequality towards women is linked to economic deficiency in terms of social contributions, including women’s health and access to resources.  Women, being part of the contribution population of an economy, have an impact on the development of economies. Articles advocating for the need of gender equality cite studies that have been done on the impact of women in social, economic, political and corporate environments. With the mounting evidence presented showing the success that companies have had with gender equity policies, the argument against gender equality falters.

Section 2: Attempts to Fix the Problem

Voluntary Compliance

In the fight for gender equality, many multinational organizations have acknowledged the need to promote gender diversity on their boards. The global increase in attention has prompted a movement of implementing targeted diversity goals in firm’s operations. An increasing expectation is placed on companies to involve themselves with gender equity and combat the inequality of women in executive positions.  With the buzz about gender equality, various initiatives for gender diversity on boards have been explored and studied for effectiveness.

A few of the devices that have been used in the fight for diversity include active shareholder campaigns and voluntary compliance targets. With these mechanisms in play within firms, companies have the potential to enhance diversity and increase women’s representation on boards. An academic article examining the impact of gender diversity illustrates the differences between soft and hard laws for gender diversity in Spain. Soft legislation such as recommendations and encouraging provisions often conform with firm operations and rely on encouragement and commitment from participants. The contrast between soft laws and hard quotas is the method of enforcement. Hard laws often have a way to mandate the measures and introduce regulations to assure compliance and collect data on results.

The presentment of voluntary gender targets for boards is generally a go-to in the promotion for gender diversity in executive positions. The implementation of voluntary targets can be gradually applied to the firm, encouraging commitment without enforcing compliance. Typically, this approach develops slowly and takes time. With the slow-moving nature of voluntary agreement, the end goal of gender targets may never be achieved. Accordingly, voluntary targets are not highly supported by firms looking for radical change. Although progress may be seen, other mechanisms for board diversity offer more tangible results.

Implementation of Quotas

Studies on gender diversity on boards seem to agree on the outcome of voluntary compliance – encouragements and voluntary programs generally don’t work to produce results rapidly. With the growing importance of firm participation in gender equality, other initiatives are often looked at with greater interest. In September of 2018 California signed a bill urging public companies to increase the number of women on corporate boards by the end of the year 2019 or become subject to fines. In order to influence work environment, the bill mandates that a minimum of three women directors are needed. This is consistent with evidence attesting that tangible benefits are only seen when three or more women are included in board positions. Companies such as Facebook and Apple that are headquartered in California will be among the larger companies that will need to increase the number of female positions on their board.

Overall, the results of gender diversity legislation offer effective means for raising awareness of gender inequality in the paid labor force, with practical punishments to encourage cooperation. In general, the research done on gender diversity and firm performance suggests a positive association with overall company diversity, gender diversity included. With growing recognition of the advantages that gender diversity on boards brings, companies have introduced several tactics to heighten gender diversity within board positions. Countries such as Sweden and Norway have almost doubled the average percent of women on boards, and introduced the policies through quotas and specific goals with strict penalties when not met. As demonstrated in the article, the benefit seen from diversity quotas is intensified when regulation is used to mandate the quotas.

With the growing availability of technology, the trend of globalization has grown in countries, particularly in large competitive nations. One of the major components to ensuring the improvement and success of a nation is to take advantage of the available capability in a country. When available and capable women are allowed to contribute to production, companies have been proven to out perform the competition. Many multinational companies have adapted operations to encourage gender equality throughout the company to improve development not only within the company, but uphold corporate responsibility and maximize contributions to the economy. Recognized increase in gender diversity is typically seen when the targets are fulfilled.

Section 3: Benefits of Increasing Gender Diversity

Why Gender Diversity Matters

With the intensified response to gender inequality, consumer desires have recently shifted towards companies that endorse equality.  On August 19, 2019 it was announced that because of consumer shifts, corporations are coming to realize that stockholder profit is not their only concern but that they must focus on other stakeholders such as employees, customers, and the community.  This corporate responsibility harkens back to the original regulation of corporations, when they had to have a community benefit. Hence the importance of upholding value in the consumer eyes.

Customers are focused on supporting ethical, responsible companies that maintain accountability. Employees are looking to work for fair and responsible companies with equitable company policies. As consumer demands shift, companies are forced to analyze their operations and strategy to ensure equal treatment of genders.  As a result, many corporations have implemented an “action plan” to address the gender inequality present in current policies. These action plans include multiple steps: most implement the changes to strategy and operations over the course of the next few years, but all recognize a need to close the gender gap along the company ladder. As the business world develops into a more connected and globalized atmosphere, companies are focusing on measuring and improving gender diversity to achieve better performance among the global leaders.

Diversity matters to company’s profits. Numerous companies have enacted changes that balance out the inequality of genders in boardrooms, the hiring process, and in talent recruitment. Multinational companies such as Amazon, Nike, and IBM have all committed to “strike gender diversity in terms of pay rate,” meaning that these companies are starting to incorporate equal pay policies into operations. Numerous American companies signed on the White House Equal Pay Pledge in 2016 alone, and over 40 more in the following years totaling over 100 multinational companies. Other countries have taken initiative at a national level. The push for gender diversity within firms is not only locally driven, but also driven by a company’s acknowledgment that it is necessary for long term global sustainability.

The success of these policies has demonstrated to companies across the world that implementing gender equality into company operations increases the effectiveness of decision-making and basic production. The evidence from companies enacting diversity policies is sufficient enough to encourage states and countries to pass their own quotas and policies to combat gender inequality. The growing recognition of deficient gender diversity within the workforce has sparked action from companies and policy makers. Not only does gender diversity matter to company profits, but also gender diversity is important in the success of national economic standing. European countries that mandate gender diversity display numerous benefits from the success of these quotas. The 2011 Lord Davies Report published a study with significant favorability of the positive effect that women on senior management brings to both company performance and corporate governance.

Countries that have enacted gender diversity onto corporate operations such as the United States and France, have progressed into a higher representation of females throughout their company. As a United Nations goal, achieving sustainable economic growth is a responsibility of nations. The economies with mandated quotas, such as Norway and Finland, have set an example for other countries around the world, proving that compliance with these policies has encouraged growth. Without penalties countries often do not see the impact that gender diversity can bring.

Impact of Gender Quotas on Businesses

Without gender diversity, companies will struggle to maintain a competitive strategy in a global economy that associates diversity with performance. Escalated labor participation by women incentivizes companies to include women in their recruitment. Expanding the pool of capable laborers solidifies a company’s hopes of securing adequate talent. In order to keep firms successful in the long-term global economy, firms are adopting structural changes to account for a shift in socio-economic standards. Collecting and retaining talented and capable employees remains one of the biggest challenges to corporate operations. From a purely business point of view, it does not make sense to exclude half of the available labor force. Countless opportunities are lost with women omitted from consideration.

Another concern of businesses is maintaining an employee group that is not only qualified to perform the job but contributes innovative ideas. Recent trends in business have undergone transformation as technology advances and production changes, creating new needs for skilled labor. Women are not only capable and available for these positions, but studies have found that more diverse companies improve employee satisfaction and decision making, ultimately leading to increased returns for the company. Determining the skills and talent to remain competitive in the business environment and continually increase profitability is necessary for a firm to survive.

Inclusion of women on boards benefits companies since the main consumers are women; they are better able to replicate consumer desires. Women on boards can bring knowledge of consumer patterns and behaviors that give firms an advantage in the market. The ability to adapt to market trends impacts company’s success and profitability globally. Companies remain competitive by undertaking market and consumer evaluations, allowing them to gain insight on what consumer demands are and then produce a product that fulfills demand. According to a case study by the International Labour Organization, when businesses enact gender-inclusive policies they have more success in evaluating consumer profiles. Consumer marketing to satisfy consumer expectations should be one of the main concerns of corporate boards. It is in a firm’s best interest to enact gender diversity policies within executive positions allowing them to fulfill both consumer desires and corporate social responsibility demands. Ensuring that women participate in board decision making is beneficial to companies in many different ways.

A case study published recently by Deakin Law Review shows both sides of mandatory diversity quotas in firms and their practicality within businesses. This study exemplifies how important diversity is in terms of firm efficiency. The recognition of a need for equality in the business environment is because of varying arguments exemplified in the case research. The findings from the study conclude that the majority of researchers acknowledge the importance of diversified board members and that greater board diversity ultimately creates greater opportunities for a company to succeed financially and create social sustainability.

Modern business culture is expanding to include more gender-inclusive policies, changing recruiting practices and boardroom culture to reflect the gender diverse culture. In a study of approximately 7,000 companies in 60 countries, women held a position in 15% of all global board positions in 2017 according to Catalyst. Women, who make up half of our entire population, are represented in less than a quarter of the available board positions world wide. The capabilities of the population are not being deployed by this clear exclusion of women. Luckily, company culture and consumer desires are changing to reflect the growing need for women in board positions. Women have long been proven to favorably compete with men in terms of the labor market, yet the gender gap on corporate boards is still evident in companies.

The majority of businesses have enacted “equal opportunity” policies, but the procedures alone are not enough to cultivate a gender-inclusive environment that generates results. These policies require enforcement, not just introduction alone, to help create a productive and successful program for implementation. Most companies are structured around teams and multi-run departments –centered on high performing members and their ability to make strategic decisions. Diversified boards are better able to spot opportunities and overcome challenges due to the wider pool of knowledge that boards include when women are present.

Ultimately, research has proven that women’s growing participation in the labor force supports company growth and increases success and development. With the acceptance, representation, and implementation of diversity quotas in the work force, the capabilities of corporate board governance increase in value. By allowing all qualified individuals an opportunity to gain employment throughout the executive ladder companies gain profitability by increasing board gender diversity.

Impact of Equality Policies on the Economy

Company performance is connected to the economic success of the country they contribute to. The performance of business sectors contributes to the economic success of the countries they interact with. Productivity of companies is measured to evaluate the solvency of firms in terms of both domestic and international economic success. A major source of development in a country’s economy is the business sector’s fiscal production, including GDP contributions. As opportunities for gender equality increase, the long-term positive impact on national GDP continues to grow. Publications from the World Economic Forum estimate that a global increase of $5.3 trillion would be added to the GDP output if the gender gap in labor shrinks 25%. Since companies contribute major aspects to a country’s economy, it is important to evaluate the efficiency and productivity of enterprises as a whole in order to assess the economic development and sustainability of a country. Strategic operations include utilizing all available resources, such as women, allowing a maximum return through the most efficient channel.

Higher return for companies stimulates the economy, fostering growth in firm production and shareholder value when invested back into the national economy. Overall efficiency of businesses is a driver of the economy. The World Economic Forum published a report revealing that a 13 percent increase in GDP would be possible with greater female participation in the labor force. This study shows just how positive of an impact gender equality within companies can have on the economy: a growth of 1 percent of female employment on average contributes .16 percent to national GDP growth. The development of an economy is determined by how well companies are able to make a profit and use those returns to contribute to the economic market. The best way a firm contributes to the economy is through development of the most strategic operation, capitalizing on profitability and production value reinvested in the economy. By excluding women, firms have not engaged the most sustainable operations to capitalize on returns for the company, squashing any potential return to the economy.

With the evident gap in employment diversity, companies are not able to contribute to the growth of the economy, but an increasing number of studies demonstrate just how board diversity helps boost the economy. In October 2016 a study was released finding that companies with a greater number of female directors on their boards returned higher dividend payouts. Overall, gender diversity seems to imply greater success in many aspects of the firm, including return on capital, return on equity, and return on investments. A fully favorable economy is achieved by mandating gender diverse boards within firms, thereby increasing the productivity of individual firms and countries as a whole.

Section 4: Conclusion

Results From Adoption of Gender Diversity Policies

Companies have taken a shift toward socio-economic harmony, yet many companies are still not enforcing these diversity policies. The increase in the trend of globalization and a greater economic performance has impacted companies across the globe. Yet American women still struggle with equality and representation in the paid labor force. In an effort to address the inequality, countries and multinational companies have recognized the need for gender diversity initiatives on boards. Studies such as “Women in Business and Management: Gaining Momentum: Global Report” demonstrate the undeniable benefits of gender equality in the workplace while bringing light to a large barrier in the advancement of equality. The underlying prejudice of existing businesses prevents these large companies from receiving the tools and guidance they need to improve current inequality.  Studies provided in this paper show just how positive the impact of gender equality on boards can be to not only firm production, but the firm’s contributions to the economy.

Gender equality and gender board diversity are emerging as a significant component of firm’s economic success. Both social and economic governance within the firm is impacted by board diversity.  When the process of decision making and productivity are improved, ultimately the benefits to the economy are improved as well.  A gender diverse board is a strategic business operation. Businesses, as well as legislatures, can learn from these diversity policies implemented in other countries. A study done on the financial aspect of gender diversity on boards suggests that investors place increased value on heterogeneous boards in high paying, complex companies. Increasing the value of these firms boosts national value as well. The increased production in firms allows growth in profit, in turn resulting in greater capital that can be invested into the economy.

Regardless of the growing evidence showing the benefits of gender diversity initiatives, corporations still have not taken on responsibility for their role in the needed movement of change.  When companies and nations mandate gender diversity policies numerous advantages have been proven for both.  Throughout this paper, gender diversity on boards has been shown to improve company outcomes and increase social development, all providing a higher GDP for the country in the end. Needed change does not end here however. California is the first and only state in the U.S. to enact a gender diversity requirement for boards. The positive impact of gender diversity outlined in this paper exemplify the increased benefits seen in both company operations and country production. An increased effectiveness is seen when a quantifiable number of women are in board positions.

Suggested Implementation of Gender Diversity on Boards

Countries with gender diversity quotas in place have been studied to follow the impact of the policies implemented in the economy. The recent movement toward gender equality has proven to be a small step in the struggle for equal rights. Studies and research on this issue tend to illustrate a similar message, stressing the importance of mandatory gender diversity on boards in the movement for global gender equality, ultimately achieving a sustainable globalized operation. Ultimately, the benefit to the economy is only seen once gender diversity is improved within an organization with mandated implementation. In order to reap the benefit of gender equality, measurement of these policies is necessary. Measures such as yearly reports on board standings and annual summaries of operations and strategies can be implanted into companies, providing a quantifiable measurement for gender diversity in the board.

As a country prideful in the leadership of globalization, America has the potential to demonstrate the capabilities of a country with full access to gender equality. Showing that women have a positive impact on firm performance confirms the positive impact that a country can have with use of gender equity polices. The development of globalization trends has forced an evaluation on the benefit of gender equality to an economy and what countries can do to contribute to the success of the global economy. America has an obligation to contribute to the success of the economy. This is not being fulfilled with the current state of gender diversity.

Currently, an estimated 15 percent of national GDP is lost due to the gender gap. This report consolidates research done on the economic impact of gender diversity on boards, both at a company level and at a national level, but does not address the obvious problem that the gender gap has in terms of national and international inequality. Mandating and measuring policies is key in ensuring that beneficial results are delivered to the economy.

The strategy of mandating gender diversity in boards has proven to be beneficial in countries that enact gender diversity practices in both governance and companies. The debate still questions the best way to regulate these diversity policies. Various ways to mandate the change include voluntary pledges, legislative protocols, and regulations. Engagement of companies helps develop an effective way to achieve gender diversity, starting with the implementation of equal representation of women in the workforce. But as shown in research, voluntary compliance and non-regulated initiatives do not produce the most effective results.

Ultimately government mandates are the driver in developing diversity policies that will produce tangible positive results on company performance. Change is possible with the demonstration of fair and practical policies implemented into current operations. U.S. companies should look at the evidence and understand that supporting the Equal Rights Amendment will hasten equality in the workplace, executive suites, and board rooms, providing better company performance and a win/win for businesses. 

 

Kelsey Raley is a student at Thunderbird School of Global Management, ASU.

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