Mainstream media labeled 2018 as ‘Year of the woman’. Which was driven by the #metoo revolution and the apparent changes happening in society. But is this also the case when we look at business? Fewer than 10% of FTSE 100 executive directors are female. Men are still twice as likely to start their own business. Just two facts that highlight the issue of gender inequality in business as of today. So are things really that bad or will we see a revolution this year in business as well? Luckily, the latter seems more likely.
The above-average companies of today are diverse
Recent research* from McKinsey finds that companies in the top quartile for gender or racial and ethnic diversity are more likely to have financial returns above their national industry medians.
Quite the statement. So let’s take a closer look at this research and what it means for organizations. The above statement from McKinsey refers to a correlation proven by their research. But correlation does not always equal causation: more diversity in gender and race does not mean a direct increase in profit.
However, as McKinsey illustrates in their findings, the correlation indicates that when companies fully commit to more diversity they will be more successful. In the United Kingdom, greater gender diversity on the senior-executive team corresponded to the highest performance uplift in the McKinsey data set: for every 10 percent increase in gender diversity, earnings before interest and tax (EBIT) rose by 3.5 percent.
Above-average companies are mainly the companies that show true vision and leadership, which is why they can be labelled as ‘above-average’ in the first place. It shows that if we want to revolutionize business diversity, larger companies play a key role in making a change. A change that will benefit them, and benefit equality in general at the same time.
The upward trend
So about that revolution….
When we take a look at the numbers that illustrate diversity in business, there are certain trends that support the needed changes. But they also show that we are not quite there yet.
Between 1997 and 2017 the number of women-owned businesses increased by 114%, compared to a 44% increase among all businesses, American Express reports based on U.S. Census data research.
This shows a growth rate more than 2.5 times the national average. Analyzing the annual growth rate over the past two decades reveals signs of a slowdown: 3.9% growth between 1997 and 2017 (which includes the recession and recovery) vs. 2.7% between 2016 and 2017. Yet the rate of growth in women-owned businesses is still higher than all businesses, which grew 1.8% and 1.0% over the same respective periods.
Women-owned businesses now account for 39% of all U.S. firms, employ 8% of the total private sector workforce and contribute 4.2% of total business revenues.
Closing the gap to create more jobs
When we look at the statistic above it shows that almost half of all U.S. firms are women-owned. So is that revolution already in full effect? Well, although that number is promising, it can also be a bit misleading. The share of women-owned firms has grown much faster by number of firms than by employment and revenues.
While the share of number of firms from 1997 to 2017 grew from 26% to 39%, the share for employment only grew from 7% to 8% and for revenues, the share declined slightly from 4.4% to 4.2%. Which means that the majority of employees still work for men-owned business and the generated revenue comes from these companies as well.
While this proves to be disappointing, above all it reveals a major opportunity to create more jobs. A revolution in business diversity can support women to not only start companies, but also to grow them. Aligning the employment share with the percentage of firms owned would instantly create massive additional job positions.
To support women to make this happen, education in business science comes in and laying this foundation starts early in a career.
Professional scholarships for high potentials
Discussing the foundation of any strong management or leadership comes down to both education and experience. Basic education is such a foundation, and can be further fueled with specific management knowledge. More and more initiatives are launched to support this cause and to empower female leadership.
For example, leading Dutch business school TIAS offers high potential women a scholarship to support them in completing the MScBA program which spans over all business science topics – and personally guide them into powerful business leaders. Jessica Doppler, program advisor for this program, explains how TIAS supports diversity:
“At TIAS, diversity is rooted into the organization. We see much higher percentages of women at our programs compared to other business schools. This is the result of our mission to not only shape the business leaders of the future – but also the focus on them making a real impact on society.”
The Women in Business scholarship recognizes a selection of students who have the drive and potential to achieve significant success as leaders of global business. Scholars are characterized by their self-confidence, ambition and leadership potential. In other words, they have the potential to drive this revolution we are talking about.
Future of diversity and career empowerment
Next to supporting female business leaders, it is clear that large organizations need to support this revolution. Not only from a societal demand but also for their own gain.
More diverse companies, it is proven, are better able to win top talent and improve their customer orientation, employee satisfaction, and decision making, and all that leads to a virtuous cycle of increasing returns.
In addition to winning talent, these companies are also likely to bring a level of competitive advantage that retain such diverse talent.
Given the higher returns that diversity is expected to bring, it seems it is better to invest now, since winners will pull further ahead and laggards will fall further behind.