Female leadership is a competitive edge

As corporate challenges change with business conditions, more women in management may lead to higher profits and better decisions.

Theresa May shadow secretary of state for work and pensions stands among her male colleagues of the shadow cabinet during the first day of the Conservative Party Conference in Manchester, north-west England, on October 5, 2009. AFP PHOTO/ANDREW YATES
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As corporate challenges change with business conditions, more women in management may lead to higher profits and better decisions, writes Sandrine Devillard-Hoellinger Nearly a decade into the 21st century it is impossible to imagine a corporate landscape in which women do not play an active role. We would be a great deal poorer intellectually and culturally without the skill, talent and motivation that just over half of the human population pool brings to the workplace.

However, leadership in the corporate landscape continues to be characterised by a lack of gender diversity. The idea of fostering the development of talented women has, for the most part, not yet risen to the top of the corporate agenda. Beyond the current financial crisis, long-term global trends are reshaping the business world. The turmoil is likely to accelerate many of the changes that corporations need to seize these new opportunities. Effective leadership will be more critical than ever in navigating the resulting challenges.

The time has come for companies to realise that female leadership has the potential to benefit them where they need it most: on their balance sheets. Recent studies tell us that female leadership behaviours not only enhance corporate performance but will also be a key factor in meeting the business challenges of tomorrow. Promoting gender diversity can thus be a source of deep, sustainable strategic advantage.

Within many companies, women are significantly under-represented in management and decision making roles. While women account for 55 per cent of all university graduates in Europe, they represent on average just 11 per cent of the governing bodies of listed companies. Even in Norway, where women hold more than 32 per cent of top executive jobs - compared to just 1 per cent in Luxembourg - the situation is still far from parity.

Furthermore, continued growth in the number of female university graduates in coming years will not help fill this gender gap because of a lack of effective corporate training. Unless there are significant changes in the way women are developed and promoted within companies, they will continue to be significantly under-represented in top management. There are several reasons for this. While progressive social policies can be more or less favourable to women in the workforce, corporate models - historically designed and led by men - form the pillars upon which the so-called "glass ceiling" rests. The combination of work and domestic responsibility weighs heaviest and is highlighted by many women as the main barrier to long-term career advancement.

Women also have to learn to master traditionally male-dominated codes of behaviour, for example the ability to promote oneself and to be assertive about one's performance and ambitions. A third, and critical, barrier is the lack of available female role models, networks and mentorship. Perhaps as a result of these perceived obstacles, many women appear to have lower professional ambitions than men. According to a recent Harvard Business Review survey, 48 per cent of men see themselves as "extremely ambitious" or "very ambitious", while only 35 per cent of women have a comparable self-image. Only 15 per cent of highly qualified women aspire to positions of power against an average of 27 per cent of men.

Should companies take action to address these barriers and invest in the challenging journey of achieving gender diversity? According to a study by the management consultant McKinsey and Company in 2007, the answer is definitely yes. The research showed that companies in which women are most strongly represented at board or top management level are also the companies that perform best organisationally and financially.

McKinsey analysed the performance of 231 companies - including public, private and non-profit organisations - based on the evaluations of 115,000 employees across dimensions such as leadership, direction, accountability, innovation and values. Importantly, the analysis revealed that the companies that performed better in those areas also consistently generated better financial returns, indicating that better organisational performance is correlated with better financial performance.

McKinsey then focused on the 101 companies in its sample that publish the composition of their governing bodies. Intriguingly, they found that companies with three or more women in their management teams performed better across all surveyed dimensions than those with none. Importantly, the differences were only significant when there was a critical mass of at least three women at the top. Another study from 2007 conducted by the investment fund Amazone Eurofund reinforced these findings. It showed that the 89 European-listed companies with a market capitalisation more than ?150 million (Dh815.9m) and the highest levels of gender diversity in top management outperformed their sector in terms of return on equity, operating profit and stock price growth on average. That once again established a clear link between having more women at the top and improved company results.

Having established a link between female leadership behaviours and company performance, McKinsey then investigated the extent to which those behaviours will be critical in meeting the business challenges of the future. More than 1,000 executives from around the world were asked to rate the importance of 14 long-term global trends that are likely to shape the business landscape in coming years. The top three: A faster pace of technological innovation; increasing availability of knowledge/our ability to exploit it; and competition for talent at a global level.

The executives then ranked which leadership behaviours would be most effective in managing these key trends going forward. Four emerged as critical: intellectual stimulation; inspiration; participative decision making; and expectations and rewards. Importantly, more than 70 per cent of executives who rated these behaviours at the top of the list also said those qualities were lacking in their companies.

So could the rise of female leadership help bridge this gap? Of the four leadership behaviours perceived as being most important for the future, there is one - intellectual stimulation - that is applied equally by men and women. The remaining three are adopted more frequently by women, according to McKinsey research. Thus, female managers - through the nature of their leadership - not only contribute to improve company performance, but will contribute significantly to meet the global challenges of the years ahead. This clearly makes a strong case for companies to have more women in top management.

But how do we make this happen? McKinsey's research also outlines the key actions that companies must undertake to achieve true gender diversity. Here there are no short cuts. Companies need to institutionalise best practices across their organisations, covering areas including implementing gender-diversity measures, adapting human resource policies and processes, and transforming professional development support.

Critically, any such transformation programme will only be successful if it is initiated and fully supported by top management, who are mostly male. We should not underestimate the size of the challenge. The extent of the change required to develop true corporate gender diversity partly explains why female representation in top management has evolved so slowly. However, the investment required is undoubtedly matched by the potential gains.

As the McKinsey research shows, increased female leadership - and indeed diversity of leadership in general - can be a genuine lever of differentiation in the marketplace. Companies that succeed in fostering gender diversity will have a clear competitive edge that latecomers will find hard to match. In today's corporate world, taking the lead on gender diversity is definitely a strategic decision.

Sandrine Devillard-Hoellinger is a principal at McKinsey and Company