Gender diversity isn’t just about social justice, it’s about economics

How can we add $12 trillion dollars to the global economy by 2025? Close the gender gap and promote more women to leadership positions in business.

More than a social justice issue, adequate female representation in company leadership can result in significant cultural and financial growth for businesses around the world. A 2018 study found that organizations with at least 30% of leadership roles held by women are 1.4 times more likely to have sustainable, profitable growth. Other research has shown that gender-diverse business units have average revenue that is 14% higher than less diverse units and 19% higher average quarterly net profits. Companies with at least three women on their board had 45% higher earnings per share than companies without any female directors.

Beyond financial benefits, including more women in company leadership promotes an organization-wide culture of diversity. Companies with stronger gender diversity indicate that integrating multiple perspectives in their business is crucial to success, often implementing more inclusive hiring processes. By utilizing objective and data-driven hiring practices, these companies allow for an unbiased assessment of candidates and train their executives to seek out leaders who may typically be overlooked. Diversity is good for both a company’s culture and bottom line, with recent research finding that inclusive teams make better business decisions that deliver better results.

Having more women at the top of an organization is known to inspire other women to follow in their footsteps and more female board members may be able to push through more female-friendly policies lower down in the organization. Although over 70% of companies say they are committed to diversity, only about 1 in 5 C-suite leaders are women. Despite this disconnect, steps are being taken to address this problem and increase gender diversity in the boardroom.

Catalyst, Pyramid: Women in S&P 500 Companies (January 16, 2019).

Here in California, the Senate Bill 826 is positioned to drive real change. In a report from CBS News last October, 25% of the nearly 400 California-headquartered public companies in the Russell 3000 stock index did not have any female directors. SB 826 states that these companies must include at least one woman on its board by 2021—meaning nearly 100 California companies are now required, by law, to add at least one female board member. Some will even have to add more than one: SB 826 also stipulates that boards of five members must have at least two women, and boards of six or more must have at least three women.

However, Annalisa Barrett, founder and CEO of Board Governance Research, has also pointed out that the Russell 3000 stock index only includes the largest public companies in the U.S. and not “microcap companies,” companies worth less than $300 million, that do not have any women on their boards. Meaning outside of major companies, female representation on most company boards are still “nowhere near parity.”

Although well-intentioned, opponents argue that SB 826 can only dictate the makeup of corporate boards that are both headquartered and incorporated in the state of California. Enforcing the law may be deemed unconstitutional if applied to many of California’s largest companies who are incorporated in business-friendly states such as Delaware. Of Silicon Valley’s most prominent tech companies, only Apple and Cisco are incorporated in California and will be impacted by this new legislation, with the former currently having only two women out of eight directors on their board. However, other legal experts disagree, believing SB 826 to be like other anti-discrimination laws that apply to all companies in California.

As advocacy for including more women in the boardroom continues, individuals and organizations can take concrete steps to aid this effort. 

Women aspiring to be a corporate board director can prepare themselves for leadership positions by diving into books on leadership and thriving as a woman in a board position; networking with people who already serve on company boards, particularly other women who can provide guidance and mentorship; and taking advantage of board service preparation organizations and educational resources designed for women looking to enter company leadership.

If you are on a corporate board and looking to add diversity to your organization, you can work with nonprofit organizations dedicated to preparing exceptional women for board service, such as Athena Alliance, Women in the Boardroom, Catalyst Women on Board, DirectWomen, The Boston Club, or onBoarding Women.

Women have made good progress, but there’s still much more work to be done—and it starts with us.