Why Companies Led By Women May Do Better

It’s true that women make up half the population, and approximately 43% of the full time workforce. 

But when it comes to the business world, women may fall far behind their male peers. They tend to earn less, in a phenomenon known as the gender wage gap, and they tend to hold fewer leadership positions. In fact, only about 41 of the Fortune 500, a list of the largest public and private companies in the U.S., are led by female chief executives. (Female CEOs at Fortune 500 companies include Mary Barra of General Motors, Corrie Barry of Best Buy, Roz Brewer of Walgreens, Heyward Donigan of Rite Aid, and Jill Soltau of J.C. Penney, among others.)

And that relative lack of female leadership might be a problem for business.

Greater Diversity at women-led firms

Some research in recent years highlights the impact that women can have in businesses, particularly when they attain executive leadership positions. Companies with women at the helm may tend to have better stock returns than their male-run counterparts, and may also gain more trust from potential investors. Some of the reasons? Such businesses may be more diverse in general, allowing for potentially greater idea sharing, creativity, and problem solving on the part of their workers. 

Financial information and analysis company S&P Global found that in the 24 months following the appointment of a female CEO, stock price increased 20% in the public companies it examined in a 2019 study. Similarly,  following the appointment of a female chief financial office, the firms in its study sample experienced a 6% increase in profitability and an 8% increase in stock returns.

The research also found that women-led companies generated nearly $2 trillion in excess profits over the study horizon, compared to those led by men, and the companies they led tended to have more diverse boards, with twice the number of women on them.

The study examined 5,825 executive appointments, of which 578 were female, at Russell 3000 companies between December 31, 2002 and May 31, 2019.

The results from the S&P study appear to correlate with other research. For example, a study conducted at Stanford School of Business between 2014 and 2018 shows that investors seem to favor more diverse companies. Following 60 announcements about gender diversity improvements at public companies primarily in the tech and financial industries, the researchers found the share price of the companies increased. Some of the reasons, the researchers reportedly postulated, were that investors tended to think of gender diverse companies as more ethical, and their employees as more creative, and perhaps able to solve personality conflicts better.

Not everyone agrees on cause and effect

However, investment bank Credit Suisse, in its own 2019 study of the impact of women in executive roles at 3,000 companies it covers globally, says that while it found a similar correlation between company performance and gender diversity in leadership, it stresses that it does not prove a definitive cause and effect. Instead, it notes that firms that hire more women and focus on diverse hiring may simply be better at making decisions about operations, which could have a positive impact on performance.

Nevertheless, the studies are important as numerous industries, particularly those that require  science, technology, engineering, and math (STEM) backgrounds, also grapple with diversity issues. For example, until recently, 70% of big tech companies’ workforces, including Apple, Google, Facebook, and Twitter were male. Similarly, entire industries such as software development and engineering have less than 20% representation by women in the workplace, according to Catalyst, a nonprofit organization seeking to advance women’s equity.

As we celebrate Women’s History Month and International Women’s Day, it’s important to consider the contributions that women make in business, and the roles diversity and inclusion can also play in promoting stronger business. 
If you want to invest in women-led companies, Stash allows you to do that through its ETFs and other investments. Note: The research noted above does not guarantee that a company’s hiring and leadership practices regarding women will result in better performance.