The Bottom Line on Women at the Top

Advocacy group Catalyst's surprising new study shows that gender diversity in exec ranks and financial performance are linked

It's the rare exec who hasn't heard that more gender diversity in the top ranks would be good for Corporate America. The arguments supporting this point of view seem intuitive enough: Women now earn half of all bachelor's degrees and nearly half of all law degrees, so companies that aggressively recruit and retain women are tapping into an increasingly well-educated talent pool.

Plus, companies with women well-represented in the ranks should be better able to appeal to female consumers, whose purchasing power is growing. And research into organizational behavior shows that diverse groups, if well-managed, make better business decisions than more homogenous groups.

But do companies with more women executives have better financial performance? "For years people have been asking that question," says Ilene Lang, president of Catalyst, an advocacy group for women in business. "We heard it from board members and from member companies."


  Two years ago, with sponsorship from BMO Financial Group, Catalyst set out to find an answer. On Jan. 26, it released a study showing that indeed gender diversity and financial performance are linked -- in a large and positive way. On average, companies with the highest percentage of women among their top officers had a return on equity 35.1% higher than those with the fewest high-level women. Total return to shareholders was 34% higher for the companies with the most executive women, vs. those with the fewest.

"The magnitude of the difference between low-gender diversity and high-gender diversity is quite big. I think everybody fundamentally believes gender diversity is a good thing, but to find something that strong is very impressive," says Harvey Wagner, an adviser on the study and a professor of business at the Kenan-Flagler School of Business at the University of North Carolina, Chapel Hill.

He had expected the study to find almost no difference in the total return measure, since it's based largely on the stock prices, which, of course, can be quite volatile. He said he was "more hopeful" that return on equity would show something significant, but he still was skeptical. At most of the companies studied, the numbers of women in the very highest executive ranks were still in the single digits.


  While Lang is quick to note that the study doesn't establish a cause-and-effect relationship, she is encouraged. "We hope people will take this report for what it is. At face value, as a lot of data that shows a correlation. Then they'll think about how it will impact their company," she says. "We hope companies will establish and maintain the policies that enable them to retain and recruit diverse women." Catalyst's goal: that valuing diversity "will become part of any company's DNA."

Catalyst examined figures from 353 of the nation's 500 largest companies from 1996 to 2000. It divided the companies into four groups, with those having the most women executives composing the top quartile and those with the fewest women as the bottom quartile. The first quartile showed a return on equity of 17.7% and a total return to shareholders of 127.7%. That compares to 13.1% and 95.3% for the bottom quartile.

Numbers were crunched for five industries (those with at least 35 companies in the sample), and significant differences were found among those as well. For companies producing consumer staples, the top quartile had a 29.4% return on equity and a 125.9% total return. The bottom quartile had only an 11.5% return on equity and a 33.6% total return. The statistics for consumer-discretionary and financial companies are less shocking but still significant. For industrials and information-technology companies, the results were inconclusive.

For Corporate America as a whole, these results should be anything but.

By Kimberly Weisul in New York

Edited by Patricia O'Connell

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