Having women in leadership roles is good for business

Researchers from Scandinavia found a connection between female leaders and companies' stability

Having women in leadership roles is good for business

One of the biggest banks in Europe, Nordea, has released a study's findings about the benefits of diversity for the value of companies. After analyzing data from Sweden, Denmark, Norway, and Finland, Nordea researchers found that companies with more female leaders have more stable returns. This might be a lesson for the world to learn from the most gender-equal nations.

Nordea has made it clear that “diversity is a broad concept; it includes issues such as age, race, education, ethnicity, religion, and many others”. So, why focus on gender? According to the researchers, when it comes to carrying out an analysis about connections between levels of diversity in leadership and corporate value creation, gender diversity is easier to identify and measure than other factors. In that sense, although diversity should be studied from various perspectives, gender is a good place to start.

Over the past 12 years, there was a very significant increase in gender diversity in the leadership of Nordic companies. Nordea looked at data from the 100 top listed companies in the region. Looking at each country's information, they found that the amount of women in group management doubled between 2005 and 2016, going from 10% to about 20%, and there is a similar trend in supervisory boards. Today, 1 out of 3 supervisory board members of these companies is a woman and 1 out of 5 of group management members are female.

The researchers divided data into two groups and then compared companies with the highest gender diversity to those companies with the lowest gender diversity. Looking at the stability of capital return, the companies in the first group were found to have far lower volatility in the return on capital employed (ROCE). “Those with the most diverse management had 40% lower volatility in ROCE” says the report.

While there is no evidence for stronger value creation by companies with a more diverse leadership, stability of returns is much greater in companies with women in leadingship roles. Furthermore, Nordea claims that stability of ROCE matters for equity value, so it should not be underestimated.

According to the bank, there is a strong tendency among investors to care about diversity because there is a correlation between low volatility and sustainability. Consequently, having female leaders can make companies more resilient to shocks, and make them more attractive to investors. In other words, investors are concerned about diversity not simply because they want to be perceived as progressive or trying to contribute to society, but because they genuinely believe that it makes a difference to how corporations perform.

Finally, it is interesting to note that women’s labor force participation has increased faster in Latin America and the Caribbean than in any other region of the world, according to documents by the World Bank Group. On the other hand, an international business report released by Grant Thornton in 2017, states that although women hold 20% of senior roles in Latin America, 48% of businesses have no female representation at that level. The progress that has been made should not be overlooked, but Latin-Americans could take Nordic companies as a reference in order to keep working towards the aim of more gender balance in the workplace.


Latin American Post | Paula Bautista

Copy edited by Susana Cicchetto