More than DEI: Why it pays to get women in the boardroom

The World Economic Forum’s Future of Jobs 2023 Report points to research that found over half of Gen Z workers would not accept a role in a company without diverse leadership.

However, as far as women board directors are concerned, businesses still have some way to go.

MSCI, an analyst group that tracks gender diversity of corporate boards, has reported that 38% of companies in its All Country World Index had at least 30% of their board positions filled by women in 2022. MSCI considers this a milestone, with women’s share of boardroom seats having increased in small increments over the past five years.

That said, emerging markets (EM) show a significantly lower share of women in boardroom roles. And in the developed markets in Europe and the Americas, less than a third of companies meet the higher target of 40%, which is fast becoming the new waypoint for gender equality. A number of European countries have already enshrined the new target of board gender diversity in diversity, equity, and inclusion (DEI) law, with others expected to follow suit. The EU itself has mandated a 40% share of non-executive directors to be women by 2026.

A study of private venture-backed companies revealed that not only are women underrepresented on boards, but only 3% of board members are women of colour.

The slow progress of women in board roles seems counterintuitive when you consider that there is a wealth of research about the benefits of having women board directors.

A McKinsey report from 2020 revealed that companies in the top quartile for gender diversity on their boards were 25% more likely to deliver above-average profitability than companies in the bottom quartile.

This link between women board directors and profitability was corroborated by Women Count 2022, a study of FTSE350 companies by diversity consultancy, The Pipeline. It showed that corporates with more than a quarter of women on their executive committees realized a profit margin of 16% - more than 10 times higher than those with no female board members. The authors say that if the latter were to perform with the same profit margin as companies with more than a quarter women board members, this would result in an additional $67 billion (£54 billion) income to the UK economy. It would also mean an extra $1.1 billion (£900 million) in pre-tax profit on average for each of these businesses.

“Each year, the UK is losing the equivalent of more than the defence budget, the entire schools budget, and triple the police budget, because of gender imbalance at the top of our companies,” the report concludes.

With whole economies poised to benefit from the inclusion of women at a senior level, how can more board-level participation be encouraged?

One route may be addressing the unequal representation of women in general leadership roles across industries. The World Economic Forum’s Global Gender Gap Report 2022 found that, on average, more women get into leadership roles in industries where there is already a high share of women. This includes NGOs and membership organizations (47%), education (46%), and Personal Services and Wellbeing (45%). At the other end of the range, energy (20%), manufacturing (19%) and infrastructure (16%) have the lowest representation of women in leadership roles.

The Pipeline report points to the importance of “buy-in” and matching behaviour from CEOs, setting targets for female participation at all levels, male advocacy for women and a zero tolerance to behaviours that prevent them from rising through the ranks.

This May, the World Economic Forum’s Growth Summit 2023 will pick up the topic of advancing gender equality, diversity and inclusion as part of the event’s focus on placing people at the heart of more resilient, equitable and sustainable growth.