Catalyst Blog

Study after study has shown how gender diversity on top correlates to greater company profits, but this isn’t the only argument for why organizations should advance women to senior ranks. It pays to diversify for an array of other reasons too. Here are my Top 5:

#1: More diversity, more innovation.

Using a sample of Fortune 500 firms, researchers found a positive relationship between board gender diversity and innovation.  They also observed a positive correlation between board racial diversity and both firm reputation and innovation.

#2: More women, fewer problems.

Analyzing 201 Norwegian firms, Sabina Nielsen and Catalyzing guest-blogger Morten Huse found that the ratio of women board directors was positively correlated with a decreased level of conflict.

#3: More women, stronger corporate ethics.

Every year, Ethisphere recognizes companies that demonstrate “real and sustained ethical leadership within their industries.” A study of the companies that make the coveted list found that they had an important factor in common: boards of directors with a high percentage of women.

#4: More women, more effective problem-solving.

A study by researchers from MIT, Carnegie Mellon University and Union College found that the number of women in a group of people significantly predicted the ability of the group overall to effectively solve problems.

#5: More women on top, more women in pipeline.

Studies by the RAND Corporation and Catalyst, among others, show a clear and positive correlation between the percentage of women board directors in a company’s past and the percentage of women top executives in its future. This suggests that one way to cultivate a healthy pipeline of women is to ensure that gender diversity starts on the top. The more women there—the more women everywhere!

Guest blog by Morten Huse, Professor of Organization and Management, BI Norwegian School of Management and President of the European Academy of Management

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In Norway, 40% of the board members of publicly traded companies are women. That’s because they must be—by law.

Norway’s approach is considered progressive. Indeed, many call the country’s initiative the boldest move anywhere to address an issue that one author has flagged as “one of the most durable barriers to gender equality.” Not surprisingly, other countries are thinking about following in Norway’s footsteps. However, business leaders, politicians and women in these countries are first asking whether or not the legislative solution has in fact made a difference in Norway.

Several studies, including one that I recently undertook with co-author Sabina Nielsen, have been conducted to explore the following factors:

- The societal impact of power balance, democracy and culture

- The business impact relating to diversity, competence and critical mass

- The individual impact focusing on the glass ceiling, careers and tokenism

Simple answers about the law’s effectiveness are not yet possible.  Before drawing conclusions, we need to understand and define aspects of value creation, including the tasks boards are to perform, plus the identities and behaviors of women board members compared with those of men board members. We also need to understand the effect of board processes, working styles and leadership.

In our study—based on responses to a questionnaire from 392 board members in 120 firms—my co-author and I did not find differences between women’s and men’s responses. We found that women directors may impact board involvement in strategic decision-making, but that the degree of impact depended upon the diverse values and professional experiences the women brought to board service as well as the perception of equality among the women and men board directors. Furthermore, we found that the degree of impact depended upon how the women used their knowledge and skills in the boardroom. Knowledge and diversity matter only if they are used, and many boards do not have processes or a leadership style that encourage the use of knowledge and skills.

That said, our study did show that the Norwegian law mandating a quota for women on boards has had a significant effect on how boards achieve their objectives. Members and their leaders have started to pay attention, not only to board composition, but also to the inner workings of boards. Moreover, we found that tokenism did not seem to be important for newly elected women who feel they are as influential as their male counterparts and considered as equals.

Finally, our research revealed the importance of critical mass on decision-making. As we noted in our study, “If women with similar (traditional) professional experiences but different values are selected, they may be able to enrich board decision-making.” The impact was considerably greater on boards with at least three women.

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Morten Huse is Professor of Organization and Management at BI Norwegian School of Management and President of the European Academy of Management. He has written, edited or co-authored more than one hundred scientific articles and 15 books, including Boards, Governance and Value Creation: The Human Side of Corporate Governance (Cambridge 2007) and The Value Creating Board (Routledge 2009).