Lack of female leaders costs US, UK and India $655 billion

08 October 2015 3 min. read

The domination of men in executive boards comes with a massive opportunity cost to corporates and society, reveals a new study by Grant Thornton. According to the researchers, $655 billion of profit is flushed down the drain by corporates in just three markets alone, with an extrapolation across companies and markets globally bringing the value into trillions. Their advice is elementary: companies, investors and governments need to consider ways of further increasing the number of women on boards to improve financial performance of businesses across the board.

Gender diversity in business remains a critical social and ethical issue for academics and cultural leaders alike. For business – driven by the profit imperative – gender diversity remains a business issue. Various reports have in recent years backed the business case for diversity, including research from BCG (‘The Diversity Paradox’), the Kellogg School of Management and the Scientific American.

In a new study, titled ‘Women in business: the value of diversity’, Grant Thornton too considers the gender diversity business case with hard numbers. The accounting and consulting giant explores whether there is correlation between business performance – in terms of financial performance – and diversity at board level. To identify possible correlation the business advisory, together with Linstock Communications, looked at publicly available information from companies on the FTSE 350 (UK), S&P 500 (US) and CNX 200 (India).

Woman on board in major indices

According to the researchers, a central issue for discovering the effects of diversity has been that comparisons between companies that do and do not have women at the top has been difficult due to the lack of women in executive roles. Recent years have seen more women make it to the top of the highest indexed companies, providing a better basis for statistical comparisons. Of the companies considered, a woman is on the board of all but 16 of the S&P 500, with 330 of the FTSE 350 and 176 of the CNX 200 having women placed in their boardrooms.

The research then considered the financial performance effects of a woman on the board, finding that the return on assets (ROA) for companies with diverse executive teams performed better than those without by a significant margin in all three markets studied. The analysis finds that male-only boards forego up to $655 billion in profit opportunities across the three economies. More diversity on the S&P 500 could potentially save $567 billion, with the FTSE 350 and the CNX 200 adding $14 billion and $74 billion respectively.

According to the analysis, bringing board diversity up to the best-in-practice level could generate an additional 3% to GDP across the UK and US. The report further highlights that the business environment is considerably more extensive than the businesses on the indices considered, with diversity on the boards of all business globally generating potentially a considerably bigger performance boost to the world economy.

Value of diversity

According to Grant Thornton, three major business stakeholders need to provide pressure on companies to further increase the number of women at decision making executive board level. Companies need to understand that male-only boards can hamper performance, investors need to pressure boards to add women to maximise their return on investment, while governments need to consider ways to encourage female board participation to improve economic performance. Francesca Lagerberg, Global Leader Tax Services & Europe Grant Thornton, comments: “Perhaps businesses have simply not been aware of the value diversity brings. So it makes sense to invest in your high-performing junior women now to make sure they are ready and willing to take the step up into senior management.”

A previous report by Grant Thornton showed that when it comes to women in business, Russia and Eastern European countries lead the way.