Evidence is mounting that diverse teams lead to better business performance

September 15th, 2021

Evidence is mounting that diverse teams lead to better business performance

In many ways, 2020 was a watershed year. It was the year the world grappled with the biggest new threat to global health in living memory. The year that working practices changed dramatically, ushering in a ‘new normal. And the year that gender equality regressed as women carried the burden of unpaid care during the Covid-19 pandemic.

It was also the year in which ESG investing (the integration of environmental, social, and governance factors in investment decision-making) went mainstream and the year in which companies of all shapes and sizes ramped up their sense of corporate social responsibility on everything from climate change to diversity and inclusion in the workplace. It may come as little surprise, then, that it was a year in which huge inroads were made toward achieving a more socially acceptable gender balance at the board level.

Since 2014, BoardEx, a provider of global leadership intelligence, has analyzed gender representation on the boards of corporations that make up 27 major stock market indices and represent 26 leading economies.

Its Global Gender Balance Report 2021 found that “2020 was a year of progress, with most indices moving closer to the desired gender balance.” At a global level, the mean percentage of women on boards at the end of 2020 was 29%, up from 27% in 2019 and a 10-percentage point improvement on the 19% recorded in 2014.

Japan moved off the bottom spot for the first time since the rankings began. Some 14% of Japanese boards are now female, up 5.1 percentage points from 9% in 2019. Other countries that made the most progress last year were Ireland, up 4.7 percentage points to 31%; the Netherlands, up 4.3 percentage points to 34%; and Denmark and Norway, both up 4.2 percentage points to 36% and 40%, respectively.

The US and UK made more modest but nevertheless notable gains of 1.6 and 2.6 percentage points to 29% and 36%, respectively. Only four countries recorded declines, all of them marginal. Austria experienced the largest decline with a 1.2 percentage point reduction to 24%.

The great divide

 Progress is less pronounced, however, when it comes to women holding positions of power – a “great divide” remains.

Several countries have few female executive directors (even ignoring the four countries that do not normally appoint executive directors to their boards, namely Norway, Denmark, Finland and Switzerland) and no country has more than 17.5% female representation among its executive directors.

Excluding those countries that do not normally appoint executive directors, there is a “striking difference” in female board representation at executive and non-executive director levels and virtually no overlap between the two measures.

Furthermore, there is a low correlation between non-executive directors and leadership teams, which suggests greater female board representation may not be improving the chances of women being promoted to the highest levels within organisations.

These three findings suggest:

1. Boards are achieving greater gender balance by appointing more women to non-executive positions.
2. Any progress being made at the non-executive level is not carrying through to executive director level.
3. And women are still struggling to reach the top.

“Clearly, much remains to be done; the progress to date could be characterized as the ‘first wave’ of board equality, with a ‘second wave, focused on executive gender equality, still – it is hoped – to come,” concludes the BoardEx report.

Mandated female board representation may act as further impetus. France and Norway have the highest quotas at 40% – a level that Norway has achieved and France has exceeded. The UK has a voluntary target of 33%, which it has also surpassed.

But achieving global gender equity in business leaders should not just be seen as an obligation – as companies bowing to government pressure or dutifully taking steps to improve their ESG standards and therefore their investability. Instead, it is a real opportunity for companies.

Evidence is mounting that diverse teams lead to better business performance and investment outcomes.

“There is certainly research which shows and proves that diverse teams do lead to increased outcomes,” commented Khalida Ali, diversity lead at Vista Equity Partners, in an interview with Institutional Investor recently. “It not only minimizes risk but helps to drive value as well.”

There is the recruitment angle, too. Younger professionals are prioritizing personal values and the social impact of organisations when evaluating job opportunities.

Appreciating the power of diversity, equity and inclusion will enable more women to get to the top, help businesses achieve their full potential, and meaningfully effect change on a global scale. 

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