There's been a lot written about the benefits of board gender diversity, but this article from the Harvard Business Review, Adding Women to the C-Suite Changes How Companies Think, reports on a study by three academics of the impact of adding women to the C-Suite—not just whether the businesses performed better, but why they performed better. In other words, "[w]hat are the specific mechanisms that drive the positive business outcomes associated with increasing the number of women in the C-suite?" According to the authors, much past research has revealed that companies with more women executives "are more profitable, more socially responsible, and provide safer, higher-quality customer experiences." But why is that the case? To find out, the authors looked at a narrower question of how the addition of women to top management teams changes companies' "strategic approach to innovation"? The authors conclude that the addition of women executives to the management team brought more than "new perspectives"—they "actually shift how the C-suite thinks about innovation, ultimately enabling these firms to consider a wider variety of strategies for creating value."


2019 analysis from McKinsey found that "companies in the top quartile of gender diversity on executive teams were 25 percent more likely to experience above-average profitability than peer companies in the fourth quartile. This is up from 21 percent in 2017 and 15 percent in 2014. Moreover, [McKinsey] found that the higher the representation, the higher the likelihood of outperformance. Companies with more than 30 percent women on their executive teams are significantly more likely to outperform those with between 10 and 30 percent women, and these companies in turn are more likely to outperform those with fewer or no women executives. As a result, there is a substantial performance differential—48 percent—between the most and least gender-diverse companies."

Similarly, a 2016 study from the Peterson Institute for International Economics demonstrated that the presence of women in corporate leadership positions improved firm performance. The study looked at 21,980 firms headquartered in 91 countries, concluding that, for "the sample as a whole, the firm with more women can expect a 6 percentage point increase in net profit, while overall median net profit was just over 3 percent." The results indicated that "for profitable firms, a move from no female leaders to 30 percent representation is associated with a 15 percent increase in the net revenue margin." According to the study, the proportion of female executives made the most significant contribution, followed by the proportion of female board members. Surprisingly, having a female CEO had "no noticeable effect on firm performance." The authors maintained that this "pattern underscores the importance of creating a pipeline of female managers and not simply getting lone women to the top. The positive correlation between the proportion of women in corporate leadership and firm profitability could reflect the existence of discrimination against women executives (which gives non-discriminating firms an edge) or the fact that the presence of women contributes to skill diversity (to the benefit of the firm)." (See this PubCo post.)

In their study, to determine the nature of any shift in strategy, the authors looked at 13 years of information for 163 multinational companies, examining their appointments of male and female executives, their R&D expenses, the incidence of M&A transactions and letters to shareholders. All of the companies in the study were "actively involved in activities associated with strategic innovation (e.g., technology-based M&A and internal R&D)." To reduce the possibility that the authors were simply observing trends already in motion, all of the authors' measurements were conducted both before and a year after the women were added to the executive team. The authors also controlled for other factors to isolate the effects of adding women to the executive team.

After the appointment of women executives, the authors identified these changes in firms' strategic approaches:

More open to change, less open to risk.The first change the authors identified was that companies "became both more open to change and less risk-seeking. In other words, these organizations increasingly embraced transformation while seeking to reduce the risks associated with it." How did authors determine that? The authors used linguistic analysis to study company communications issued by top management before and after the appointment of women executives, employing a standard methodology used for categorization of words. After women joined the executive team, the authors found that the incidence of words that reflected a "propensity for risk-taking" decreased by 14%, while the incidence of words indicating "openness to change" increased by 10%. The authors contend that this shift in the mindset of the executive team affected the team's thinking—not in the sense that the women contributed "specific new ideas," but rather by making the management team as a group "more open to change and less comfortable with risk-taking, " which "was reflected in tangible changes to how these firms made key strategic decisions."

Change in focus from M&A to R&D. The authors found that, as a result of the companies' increased reluctance to take on risk, their strategy shifted from a focus on M&A, which the authors characterized as a "knowledge-buying strategy," toward a focus on R&D, which the authors characterized as a more collaborative "knowledge-building strategy." The authors evidence showed that, when the team experienced a "one standard deviation increase in propensity for risk-taking, the likelihood of doing an additional M&A the following year increased, on average, by 10%," but more aversion to risk-taking led to significantly less M&A activity. After women joined the executive teams, companies averaged a 1.1% increase in R&D investment, which the authors characterized as a substantial increase in light of the average total R&D investment of these companies.


A 2018 study from the BCG Henderson Institute looked at the relationship between diverse leadership teams and innovation. The study concluded that "increasing the diversity of leadership teams leads to more and better innovation and improved financial performance." Why? Because "people with different backgrounds and experiences often see the same problem in different ways and come up with different solutions, increasing the odds that one of those solutions will be a hit." The authors conducted a survey of employees at more than 1,700 companies in different industries and of different sizes in the U.S. and seven other countries. They considered management diversity with regard to gender, age, national origin, career path, industry background and education (although age and education appeared in the study results to have less impact). The level of innovation was assessed by reference to the percentage of total revenue from new products and services launched over the prior three years. The authors determined that there was "a strong and statistically significant correlation between the diversity of management teams and overall innovation. Companies that reported above-average diversity on their management teams also reported innovation revenue that was 19 percentage points higher than that of companies with below-average leadership diversity—45% of total revenue versus just 26%….In other words, nearly half the revenue of companies with more diverse leadership comes from products and services launched in the past three years." The study also showed that these companies also reported better financial performance, with EBIT margins nine percentage points higher than companies with below-average management diversity.

More impact if women well-integrated.The authors report that the better women were integrated into the executive team, the greater their impact. This effect was especially evident where there were already other women on the team and where the new women executives were part of a smaller group of new appointees. Interestingly, the authors found that adding women executives to the team "only actually changed C-suite thinking in cases where the executive team already had at least one woman."


The BCG study discussed above also examined the impact of the work environment. To fully capitalize on diversity, the authors contend, companies also need to be proactive and provide an inclusive environment. Accordingly, the study looked at the presence of the factors including "fair employment practices, such as equal pay; participative leadership, with different views being heard and valued; a strategic emphasis on diversity led by the CEO; frequent and open communication; and a culture of openness to new ideas." The study found that few companies measured up to these attributes—”fewer than 40% of respondents said that any of these characteristics describe their company." However, the study also found that, where these conditions do exist, companies reported "measurably higher innovation revenue—nearly 13 percentage points more than that of companies where the characteristics are weak or not present."

Why did the inclusion of women executives have these effects? The authors suggested several possible explanations based on prior research. To advance to the highest management levels, the authors theorized, many women must "walk a difficult tightrope" that requires them to "carefully weigh the benefits of their innovative proposals with the risks of potential failure. Based on this common experience, one could expect [executive teams] to become more focused on balancing innovation with risk mitigation as more women join their ranks." The authors also suggested, based on prior research, that women executives are "likely to care less about tradition and are more open to challenging the status quo than their male counterparts. Behavioral psychology has found that these sorts of attitudes fundamentally increase others' receptiveness to change." Past studies also suggested that women were "on average more risk-averse....When an individual who seems more risk-averse enters a group, research has found that it can cause other group members to believe that the group as a whole is more risk-averse than it actually is, which can in turn lead everyone to become less open to risk." Finally, prior studies indicated that "having more diverse perspectives... can make a group more open to change, and more likely to see change as feasible," while the breadth of opinions can slow the decision-making process, decreasing the chances of rash decisions. As a result, the authors suggested, these shifts in approach could be "simply the direct result of increasing diversity" on the management team.

Although these patterns are not necessarily applicable in every circumstance, the authors contended that their study provided insight into the "broader impact of gender equity in the C-suite," beyond simply a focus on a female CEO. In addition, they believed that they would "see similar findings for members of other underrepresented groups, such as racial and ethnic minorities."

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