November 16, 2011 — Companies should have a conscience—gone are the days when profits, and profits alone, can grow a sustainable business. But how do smart companies boost their levels of corporate social responsibility (CSR)? As Catalyst’s Rachel Soares, Senior Associate, Research, explains, gender-inclusive leadership and increased CSR go hand in hand.
What is the number one goal of a corporation? Seems like a foolish question—flip open any MBA textbook and the “right” answer is obvious: profit maximization. But is it really so simple?
If companies haven’t turned their ears to the Occupy Wall Street protestors yet, they should. The growing movement reflects an important trend in public opinion: 71% of Americans report an unfavorable impression of Wall Street and large corporations. It’s clear that while companies need to make money to survive, profit maximization, without regard to consequences or risks, is not a strategic business practice.
Cue corporate sustainability.
Through its focus on stakeholder relations, a key tenet of corporate sustainability is CSR, or corporate social responsibility—a consideration of the organization’s impact, both positive and negative, on the world. Companies committed to CSR pay more than lip service to their stakeholders, looking beyond the interests of quick-buck investors. They are positioned for long-term growth.
For members of Generation Y (that’s me), CSR isn’t just a passing fad. A company’s CSR activities are a visible way to judge their values. And one easily investigated metric—something that we at Catalyst measure for every Fortune 500 company each year—is the representation of women in senior leadership. Gender and Corporate Social Responsibility: It’s a Matter of Sustainability, a study I recently authored with Harvard Business School’s Christopher Marquis and Matthew Lee, shows that companies and society win when business leaders are gender-diverse.
My co-authors and I found that across a period of ten years, companies with more women board directors and more women corporate officers donated significantly more charitable funds than their less-diverse peers. Each additional woman board director translated to an added $2.3 million in annual philanthropic giving. And for every percent increase in woman corporate officers, companies gave an additional $5.7 million.
These findings can’t be explained away by factors other than gender diverse leadership. Women leaders still had a significant positive effect after controlling for financial performance, company size, and industry. While this could be a case of the chicken versus the egg, other research suggests that diverse leaders are employed before increases in CSR are observed.
So why might this be? We believe that operating with gender-inclusive leadership can provide diverse perspectives on fairness, which may broaden the company’s understanding of CSR and lead to greater philanthropy.
Obviously, CSR isn’t just about the quantity of philanthropic donations. The quality of initiatives is important too. We speculate that when leaders spotlight gender issues in their CSR strategies, for example focusing on the importance of women as customers and suppliers, they often position their organization for sustained growth, and the payoff extends beyond the company to society at large.
So the next time you are looking to invest, make a purchase, or take a job offer, consider the gender diversity of the company’s leadership. It might point you to a company that pays attention to its stakeholders, and not just the next quarter’s balance sheet.
Rachel Soares conducts research on corporate governance and women in leadership, and oversees the annual Catalyst Census reports of the Fortune 500. She is also a member of Catalyst’s Work-Life Issue Specialty Team. Through her current role at Catalyst and prior positions, she has extensive experience working with quantitative and qualitative research methods in leadership, organizational change and effectiveness, and work-family contexts. She received her M.A. in Organizational Psychology from Columbia University, Teachers College, and her B.A. in Psychology and Sociology from New York University.