The business case for gender diversity asserts that organizations that develop and advance women will benefit for a number of reasons. Specifically, they will access a large part of the available talent pool, as well as employ individuals who reflect a substantial part of their consumer base. This study sets out to determine whether there is a link between gender diversity and corporate financial performance.

Impetus: Although research has been conducted in this area, no firm link has been established between gender diversity on top leadership teams and financial performance.

Methodology:

• A list of all companies that appeared in the Fortune 500 from 1996 to 2000 was compiled (with adjustments for name changes and merger and acquisitions activity). This list was narrowed to include only those companies for which there existed at least four years of data on financial performance (return on equity and total return to shareholders), as well as the gender diversity of the top management team. The final sample included 353 companies.
• Those 353 companies were divided into quartiles—with roughly equal numbers of companies in each quartile—based on women’s representation within the top management team.
• The financial performance of top- and bottom-quartile companies was compared.
• The 353 companies were divided into 11 industry sectors, which allowed us to compare the financial performance of top- and bottom-quartile companies by industry. Of the 11 industries in this study, there was enough data (enough companies in a particular industry) to conduct analysis within five industries—consumer discretionary, consumer staples, financial, industrials, and information technology/telecommunications services.

Findings: Companies with the highest representation of women on their top management teams experienced better financial performance than companies with the lowest women’s representation. This finding holds for both financial measures analyzed: Return on Equity (ROE), which is 35 percent higher, and Total Return to Shareholders (TRS), which is 34 percent higher. In each of the five industries analyzed, the companies with the highest women’s representation on their top management teams experienced a higher ROE than the companies with the lowest women’s representation. In four out of five industries, the companies with the highest women’s representation on their top management teams experienced a higher TRS than the companies with the lowest women’s representation.

Sponsor: BMO Financial Group