Who Runs the Business World? Not Women, But Performance Suggests They Should

By: Alex Benedict

The glass ceiling is all too prevalent in Fortune 500 companies, where women are incredibly unlikely to find themselves on executive boards, and even less likely to find themselves as CEOs.

Moving Up the Ranks: Not Quick Enough

The Harvard Business Review studied the top performing two thousand companies in the world and found that a meager 1.5 percent (29) of CEOs were women. The Review found that the one trend among female CEOs is that they were twice as likely than men to have been appointed to the job by an outside firm. This insider mobility problem is one of many preventing women from moving ranks upward and making it to the top of their respective company. In short, misogyny is a staple of the American workplace. Women are more likely to be scrutinized by the media, and the appointment of a female CEO is covered three times more than the appointment of a male CEO, solely because they are such a rare occurrence. Northwestern University’s Kellogg school of Management conducted a study on this exact event, and found that when taking media coverage into account, the stock for a company with a recently announced female CEO dropped on average, 2.5 percent. However, when coverage of her appointment was minimal, there were positive market returns of about 2 percent. In any case, the announcement of a male CEO had a positive effect on the stock with or without extra media attention.

In 2017, though women and minorities had increasingly compiled more executive positions in white-male dominated companies in the United States Fortune 500, they still made up approximately 30 percent of all executive board positions by the end of that year. As of May 2018, Fortune reported that only 24 of their top 500 companies, or just under 5 percent, boasted female leadership in the role of CEO while 12 of those companies do not even have a single woman on their executive boards. Yet in 2016, women in the top ten most gender balanced countries, including Norway, Latvia, and Italy, received graduate degrees 21 percent more frequently than their male counterparts, and 64 percent of those women received degrees in law, social sciences, and business. This level of executive equality evidently has not yet reached the United States. While these figures may seem like incredible progress made since the turn of the century, it is in Fortune 500 companies’ best interests to further invest time and resources into improving board diversity and diversity throughout all levels and devise new gender-diversity based hiring practices to boost profits and gain an edge over the less diverse competition.

Some statistics:

In 2016, Deloitte Consulting Group conducted a study on board diversity in Fortune 500 companies in the U.S., specifically focusing on the inclusion of women and minorities. The results were nothing unexpected; just under half of Fortune 500 companies have a board diversity rate greater than 30 percent.

But in recent years, diversity figures have risen. The Pew Research Center records that the presence of female board members in Fortune 500 companies has more than doubled from 1995 to 2016, 9.6% to 20.2%, respectively. Between 2012 and 2016, board seats held by caucasian women had increased by 21.2 percent, while the number of caucasian men had decreased by 6.4 percent. Similarly, the presence of African-American women had increased by 18.4 percent within that period. But, as of May 2018, only two of the 24 female Fortune 500 CEOs are women of color, none of whom are African-American. Yet Deloitte is optimistic, and they predict that by 2026, these figures for women and minorities will further increase by 40 percent as long as white men continue to appear on boards by an average of one percent less frequently each year.

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Image courtesy of the Pew Research Center.

Things have recently been looking better for U.S. booming business in the Fortune 100 than in the Fortune 500; the top 100 U.S. companies were composed of 35.9 percent women and minorities in 2016, as opposed to the 30.8 percent diversity found in the total compilation. Deloitte concluded that between 2012 and 2016, there was an increase of 15.4 percent of women in board seats, while there was a decrease in men by 4.7 percent.

The Pew Research Center, an empirical nonpartisan think tank, reports that as of 2017, only 5.4 percent of Fortune 500 CEOs were women. The Deloitte report also acknowledges this embarrassingly low statistic and states that this diversity trend might be upward, but it is too slow to keep up with the times. The findings state that “diversity is beginning to be viewed through a much wider lens to encompass a range of skills, experiences, and perspectives that could help safeguard an organization against new and emerging threats…it will be important for corporate boards to consider the benefits and skill sets that gender, racial, and ethnic diversity could bring to boardroom discussions.” The bottom line is that board diversity is good for business. The most notable benefit being that having board members of different backgrounds and with different perspectives allows for a greater opportunity to foster creativity, leads to more innovation, and consequently to greater success for the firm.

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[1] Image courtesy of Statista. Historical Percentages of Women CEOs
This data can and should be seen as encouraging two ways: in just four years, women and minorities gained many executive roles in the largest companies in the U.S. But to continue this trend, companies must strengthen their diversity initiatives.

While these facts can be disheartening and discouraging, overall, firms will recognize that the presence of women usually correlates with greater growth and company.

Common Misconceptions and Prejudices

Fortune reported on a 2015 study by the Pew Research Center aimed at determining common perception of female ability in the male-dominated workplace. They concluded that most people, or 80 percent of their test group, agree that men and women are equally capable of successfully leading a business. But the results took a classically expected sexist turn when the respondents were asked about leadership in specific industries, including technology, energy, and finance companies. These findings correlate with the twelve Fortune 500 companies that, still in 2018, do not have a single female board member. Of these twelve, four are energy companies and two are financial.

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Image courtesy of Pew Research Center.
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Image courtesy of Fortune.

Seven of these twelve firms in this chart, none of whom sported significant diversity statistics on their executive boards, had negative returns over a five year period.

Reaping the Benefits

According to a 2016 study by the Peterson Institute for International Economics (PIIE), companies with more women in executive positions achieve higher profits. The study focused on 21,980 firms from 91 countries, and gross profit increased by at least fifteen percent in profitable firms where women represented thirty percent of the leaders. This conclusion gives nondiscriminating firms an edge, and the PIIE suggests that the success might actually be a result of more functional diversity. But the study disheartenedly concluded that sixty percent of these firms do not have a single woman on their respective executive boards. The PIIE study additionally suggests that board quotas, present in the majority of the countries surveyed in this study, have a negligible effect on the effectiveness of a firm. Of the countries included, U.S. companies’ female representation fell in the middle.

In the 2015 Pew Study, respondents also tended to agree that with more female leaders, both in business and in politics, would allow for greater national benefits in every aspect of life for women.

While the PIIE study proves that having more women in higher company roles positively impacts the effectiveness of the firms, the Institute attributes this success to both nondiscriminatory company practices and social norms and practices. But the 2015 Pew Study, regardless of the fact that its respondents agreed that women are perfectly qualified to fill male-dominated corporate roles, only shows that negative, sexist stigmas still exist, reinforcing the glass ceiling.

The overarching message here is that regardless of social stigma, women and minorities are perfectly capable of leading a company successfully. Diverse executive boards are actually better off than homogeneous ones, since more outlets for creativity and innovation are proven to lead to greater short term and long term growth. In order for firms to remain competitive in today’s day in age, this slow-moving but upward trend of diversification must continue.

Works Cited:

Brown, A. (17 March 2017). The Data on Women Leaders. Pew Research Center. Retrieved from http://www.pewsocialtrends.org/2017/03/17/the-data-on-women-leaders/#board-members.

Deloitte. (15 May 2017). Missing Pieces Report: The 2016 Board Diversity Census of Women and Minorities on Fortune 500 Boards. Deloitte. Retrieved from https://www2.deloitte.com/us/en/pages/center-for-board-effectiveness/articles/board-diversity-census-missing-pieces.html?id=us:2el:3dp:adbcenpr16:awa:ccg:020617.

Elejalde-Ruiz, A. Study: Share price drops when company touts new female CEO. Retrieved from http://digitaledition.chicagotribune.com/tribune/article_popover.aspx?guid=99343f8c-5ba5-4cae-aeeb-3b8c2f26da01.

Fairchild, C. (14 January 2015). Why so few women are CEOs (in 5 charts). Retrieved from http://fortune.com/2015/01/14/why-so-few-women-ceos/.

Fortune Editors. (7 June 2017). These Are the Women CEOs Leading Fortune 500 Companies. Retrieved from http://fortune.com/2017/06/07/fortune-500-women-ceos/.

Ibarra, H. and Morten T. Hansen. (21 December 2009). Women CEOs: Why So Few?. The Harvard Business Review. Retrieved from https://hbr.org/2009/12/women-ceo-why-so-few.

Lublin, J. (27 September 2016). How Companies Are Different When More Women Are in Power. The Wall Street Journal. Retrieved from https://www.wsj.com/articles/how-companies-are-different-when-more-women-are-in-power-1474963802.

Noland, M., Tyler Moran, and Barbara Kotschwar. (February 2016). Is Gender Diversity Profitable? Evidence from a Global Study. The Peterson Institute for International Economics. Retrieved from https://piie.com/publications/wp/wp16-3.pdf.

Zillman, C. (22 May 2018). These Are the 12 Fortune 500 Companies With Zero Women on Their Boards. Retrieved from http://fortune.com/2018/05/22/fortune-500-companies-women-boards/.

Article image retrieved from: http://www.telegraph.co.uk/sponsored/business/business-reporter/12031564/gender-diversity-in-workplace.html.

[1] https://www.statista.com/statistics/691192/share-of-women-ceos-fortune-500/