Closing The Gap

Companies with more female executives make more money—here's why

Chief Operating Officer, Facebook, Sheryl Sandberg
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Chief Operating Officer, Facebook, Sheryl Sandberg

Among the world's largest 500 companies, only 10.9 percent of senior executives are women, according to Weber Schandwick's Gender Forward Pioneer Index. A significant share of the companies, 37 percent, have all-male leadership teams, while an additional 21 percent have only one woman.

That's their loss, because there's substantial evidence that gender diversity at the management level enhances a company's performance.

While researchers are still trying to figure out exactly why companies with more women at the top make more money, here's what they know so far.

Diversity helps make companies profitable, innovative and respected

The Peterson Institute for International Economics completed a survey of 21,980 firms from 91 countries and found that having women at the C-Suite level significantly increases net margins.

"A profitable firm at which 30 percent of leaders are women could expect to add more than 1 percentage point to its net margin compared with an otherwise similar firm with no female leaders," the report notes. "By way of comparison, the typical profitable firm in our sample had a net profit margin of 6.4 percent, so a 1 percentage point increase represents a 15 percent boost to profitability."

Joe Carella, the assistant dean at the University of Arizona, Eller College of Management, has found that diverse companies become more creative. "We did our own analysis of Fortune 500 companies," he tells CNBC Make It, "and we found that companies that have women in top management roles experience what we call 'innovation intensity' and produce more patents — by an average of 20 percent more than teams with male leaders."

A large female presence is also associated with higher status. According to the GFP Index, Fortune's "most admired" companies have twice as many women at the senior management level than less reputable companies.

However, twice as many still isn't a lot. The average among the admired companies is only 17 percent, versus just 8 percent at the others.

Apple, No. 1 on Fortune's list, falls in line with the trend. Of their 107 top executives, 19 are women. Across the board, the company reports that 29 percent of its leadership roles are filled by women.

It's not necessarily proven that women are better at running a business, but the evidence shows that a wide-ranging set of influences at the decision-making level helps. Diversity not just across gender but across cultures similarly improves a company's performance.

"Innovation is fundamentally the result of trial and error. And if you're able to bring different skills to the process … you do a better job," says Carella.

Some differences seem to begin in the brain

Carella believes some of the gender-based effect can be explained by neurological differences between men and women. He is hosting a leadership conference in May on the topic along with how unconscious bias can affect the workplace.

Studies have found some differences in the structure of and activity in the brain, a concept known as sexual dimorphism. A few years ago, Ragini Verma, an associate professor at the Perelman School of Medicine at the University of Pennsylvania, and her colleagues identified differences in brain maps, or how regions connect. They suggest that this might help explain differences in behavior.

"These maps show us a stark difference — and complementarity — in the architecture of the human brain that helps provide a potential neural basis as to why men excel at certain tasks, and women at others," said Verma.

She "found greater neural connectivity from front to back and within one hemisphere in males, suggesting their brains are structured to facilitate connectivity between perception and coordinated action. In contrast, in females, the wiring goes between the left and right hemispheres, suggesting that they facilitate communication between the analytical and intuition," reports Penn Medicine.

The implication, in other words, is that men could be wired to take action, generally, while women may tend to be better suited to carefully analyze a problem.

Carella has witnessed this contrast in his own research on the workplace. "Men tend to be more driven to action while women tend to be a lot more conservative in the action that they take," he says.

"When organizations make decisions, you want to be able to have both" of those influences, he adds.

That is, of course, a generalization. In some studies, women have out-scored men in their ability to take initiative and drive for results. The research into sexual dimorphism is by no means definitive yet and, overall, in terms of their brains, men and women are far more similar than different.

Nonetheless, the benefits of diversity are evident.

The impact of putting women in charge

Having female senior leaders creates less gender discrimination in recruitment, promotion and retention, according to the Peterson Institute. That gives a company a better chance of hiring and keeping the most qualified people.

A strong female presence also benefits the workplace environment. For example, a large U.S. tech company brought in Carella to help lower its high turnover rate of both male and female employees. His solution was to promote two senior female execs to positions where they could influence what had formerly been a boardroom run exclusively by men.

The move ended up making the whole company more transparent and employees stopped leaving at such a high rate.

Without diversity, problems arise beyond a poor retention rate, and some of those can be dire. After the financial crisis, Sallie Krawcheck, co-founder and CEO of Ellevest and former executive at Morgan Stanley and Citibank, asserted that Wall Street's issue with "groupthink" was partly to blame.

There was a "false of comfort of agreement" among the homogeneous male leaders, she told CBS. "There was no doubt that had we had more diversity of thought, perspective, education, gender, color, the crisis would have been less severe."

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