Business leaders increasingly request hard data to support the link between gender diversity and corporate financial performance. In response, Catalyst conducted a groundbreaking study demonstrating that such a link does exist.
The Bottom Line: Connecting Corporate Performance and Gender Diversity uses publicly available data to explore the connection between gender diversity in top management teams and U.S. corporate financial performance in the second half of the 1990s. This period was chosen because it represents a time of considerable economic growth and for which there exists consistent and reliable gender diversity information.
Two measures were used to examine financial performance Return on Equity (ROE) and Total Return to Shareholders (TRS)1—in the 353 Fortune 500 companies for which Catalyst has at least four years of data. The financial performance of five industries was also examined.
Catalyst found that there is a connection between gender diversity and financial performance. It is important to note that the study explores a link, but does not demonstrate causation. In order to do the latter, all other possible causes of good and poor financial performance would need to be ruled out, which is beyond the scope of the study.
The findings highlighted below re-affirm Catalyst’s long-standing belief in the business impact of diversity.
- The group of companies with the highest representation of women on their top management teams experienced better financial performance than the group of companies with the lowest women’s representation. This finding holds for both financial measures analyzed: ROE, which is 35.1 percent higher, and TRS, which is 34.0 percent higher.
- Financial performance also was analyzed by industry; in each of the five industries analyzed2,the group of companies with the highest women’s representation on their top management teams experienced a higher ROE than the group of companies with the lowest women’s representation.
- In four out of the five industries analyzed, the group of companies with the highest women’s representation on their top management teams experienced a higher TRS than the group of companies with the lowest women’s representation.
- Catalyst Award-winning companies financially outperformed the 339 other companies in the sample. This finding holds true for both ROE and TRS.
Catalyst divided the 353 companies into four roughly equal quartiles based on the representation of women in senior management. The top quartile comprises the 88 companies with the highest gender diversity on leadership teams, while the bottom quartile is the 89 companies with the lowest gender diversity. Catalyst then compared the two groups based on overall ROE and TRS. Industry and company differences were controlled to ensure that the findings were not influenced by afew uniquely performing industries or companies. For both ROE and TRS, on average, top-quartile companies financially outperformed bottom-quartile companies.
Catalyst also confirmed that the connection holds in the other direction. Again dividing the sample of 353 companies into quartiles—this time by financial performance measures (both ROE and TRS)—Catalyst analyzed the top-quartile (88 companies) and bottom-quartile (89 companies) financial performers and found that top financial performers have a higher representation of women on their top management teams.
These findings further confirm the business case that Catalyst has put forth for the past 40 years: gender diversity is indeed a characteristic of companies with excellent financial performance, and developing women managers and leveraging that talent by giving them a seat at the decision-making table is smart business.