It’s all about what you do – from gender equality to strategic benefits

Most international surveys rank the Scandinavian countries among the very best in terms of women and men’s equality. At the World Economic Forum are all the Nordic countries among the top 10 and the independent NGO, Women Watch the small group of countries in northern Europe is also among the very best. So there is little doubt that there is something at the Scandinavian approach to gender equality, which rings true.

Although we are close to being world champions in the equality discipline it has not been something we have been particularly good at exploiting in a commercial sense. Instead we have resorted to toasts and speeches and we highlighting the individual women who have actually been able to beat their way through the glass ceiling.

In Denmark we have come up with initiatives such as charter for more women in management which is a set of principles like the Global Compact that is meant as tool for strategic gender equality development within originations or the torch campaign were individual companies communicate how they work with equality within their organization. While these initiatives are very fine they have the drawback that they simply perpetuate women and femininity as a handicap.

It is not because equality is not a real problem and that for many women means that being thirty is also de-facto means the end of their professional career in management. I just think that if we continue to regard the female gender as a handicap, we will never move beyond the challenges that both the country, but more specifically the individual companies are facing in terms of organizational development and continued competitiveness. A novel approach towards gender equality that has not exactly been dominant in the current debate neither here in Scandinavia nor to my knowledge anywhere else in the world.

Companies in charge know how to use sex

Men and women are in many ways different and in many cases, the direct opposites, like Mars and Venus, if I had to take a familiar example. Yet we are out unable to function without dealing each other’s good and sometimes bad sides.

Take, for example the trait of being entrepreneurial and the willingness to assume risk. Here is one of the traits that we perceive as being masculine and it is something we as a society appreciate. It turns out also that around. 2.5 times more men are entrepreneurs than women. Of course there are also female entrepreneurs and we are lucky to have them, yet it is a trait we usually put in connection with being a man.

As a counterweight to the enterprising men we see the risk averse women. The ability to understand and devise strategies to avoid risk is something we associate with feminine traits. It would be wrong to say that men can’t be risk averse but as we traditionally have favored the risk-taking in men and given credit to women who understand and is able to avoid risk it is the traits we see now as being most prominent. Remember that I do not judge if these traits are good or bad if they have come from the creation of stereotypes or if it is something in our genes, but only look at how people actual act.

There are many companies that have discovered that women are good in the role of risk monitors. Thus, more than 45% of audit committees in the Swedish OMX companies of women, which is in contrast to that is somewhere between 10 to 20% women on boards in general. It turns out also to companies with a gender-differentiated Board of Directors and generally cope better with the crisis at least the first one in 2008. These organizations have been able to respond quickly and consistently to market changes and have implemented the changes needed to make money in a difficult market. Examples include the Swedish Hennes & Mauritz (clothing and fashion), or the Danish firms Carlsberg (beer and soda) and D/S Norden (shipping), who all have women in both the Board and executive management. All three companies have fared well through the crisis and although it has been difficult, they have been able to exercise constant care in very troubled waters.

I’m not sure that these businesses have completely understood the significance that gender has had on their ability to adapt to its environment in an efficient manner, but in any event, it worked.

The patriarchal business is stalled

In contrast stand the less diversified firms, or said in another way, those who either did not want or have failed to attract other than male employees into their strategic management group. These companies have not been able to get rid of their risk as the market they operated in changed. This can obviously be due to many factors, but the interesting thing is that they generally perform worse than their more diversified counterparts. As a consequence of their inability to understand the organizational risks that they faced, they have not been able to show a sufficient earning capacity or have had direct losses. Both of which have been penalized by the stock markets to a degree where some of theses companies are valued less in terms of market price than the value it has according to its books.

An example of a company that has a high organizational risk seen with a gender perspective is firm Vestas. Time after time, Vestas has disappointed the market mainly because they have not had a good feel for what their stakeholders wanted to know and therefore could not live up to expectations that primarily professional market analysts and portfolio managers had. As a consequence, we have seen share prices today are at the bottom even when compared to its tangible value. As I have blogged about Vestas before there is no doubt that they have a good product, excellent production and are market leaders so there is no reason why there share price should not be much higher than it is today.

Two typical strategic moves that male-dominated companies have been using are first, to try to save themselves out of trouble by cutting costs; secondly to dismiss its leaders. It is not because this is a particularly patriarchal features that organizations use in times of recession, but the strategies only aims to reduce costs and simultaneously makes them unable to think further ahead, the whole exercise ends up in an actual fight for survival. To use an analogy it is like beating the body into submission and when that does not bring results we cut of the head. Not that some companies do have a lot of fat which can be trimmed but if there is no strategic thinking behind the cost reduction it will mount to little less than the ultimate loss of the business.

Everything else being equal, companies that have come through the crisis by adapting to and cultivating new markets perform better than those who are just coming through to save and reduce their organizations as the only means of maintaining a solid balance sheet.

The Scandinavian competitive advantage

Both here in Denmark but also in particular the rest of the countries were gender equality is high we have a resource that is not only unique but also virtually impossible to copy. By using our human resources to its full potential, we can provide competitive advantages in both the short and long term that will enable companies to navigate more safely and with less risk on the global market.

Universities and business schools produce far more women than male candidates. If business continues to let this resource remain unused and under utilized, we must compete on parameters where do not have many chances such as production costs and human and labour rights areas were we are unable or unwilling to compete.

Today there are already well-developed tools that can contribute to positive gender development in private and public organisations. The question is whether the HR departments, executives and board members are willing and have the courage to embark on an organizational debate about strategic consequences that extend far beyond the words and cheers and speeches in for example Charter for more women in leadership, Torch and other kinds of woman leader priced which reduces the debates to centre around gender quotas or not.

As individual and members of organisations we have to come to terms with the fact that women and men bring different approaches, viewpoints and perspectives to organizational development. And that these differences can be utilised strategically by organisations that know how. Through an understanding the differences that gender contribute with, we will be able to attract and retain skilled employees and thus be able to reap the benefits found in the fact organisations consist of people that think and behave differently. Female and male employees contribute, for better and for worse, to the development of companies and that the sexless organisation does not exist and that it is better to work to exploit these differences rather than ignoring them.

Advertisements

Are women in senior management and board position positively associated with higher than average economic performance?

Evaluating financial performance in relation to gender can be a tricky task. Not only is there numerous ways that a researcher can decide what good performance means but even when we are comparing apples with apples we get into trouble when we try to say something in general about the data.

So what I’m trying to say is that the choices that I have made in-order to investigate gender and financial performance might differ from what you might choose as the best indicator.

The methodology of the article is fairly simple I have looked at corporate Boards and Executive management in the Danish and Swedish most traded companies 40 companies in total. From a statistical analysis, which I will not go into detail, here have I separate the companies into three groups Low diversity, Medium diversity and High diversity relative to the country. This meant that I could produce this chart of high and low diversification among the top management and board members. F.eks. as a highly diversified company in Sweden one which have more than two women on the board and more than two women in top management, while the diversification is a little different in Danish companies. The reason for the difference between countries is mainly due to different legislation and cultures related to gender.

Organisational level Highly diversity Low diversity
SE Boards >2 <2
SE Top Management >2 <1
DK Boards >1 <1
DK Top Management >1 =0 

Together, these two measurements of corporate performance will give an indication on how companies perform with different approaches to gender composition. The data is comprised of two indicators for each country one on EBIT and one on. This gives an indication of how well the companies are able to achieve a profit and earnings per share issued in relation to gender diversity and compared with an overall average.

The EBIT analysis shows that companies with low diversity in their boards and top management have a lower than average ability to produces a profit over the period. While companies with a more diversified leadership team will do better. However, gendered companies have lower or very close to average EBIT performance on the short term e.g. 2006 for Swedish and 2005 and 2006 for Danish companies. In the last period which coincides with the financial crisis and recession gender diversified companies do significantly better when it come to earnings.

When it comes to the companies’ ability to show performance in relation to shareholders the picture is somewhat different. Companies in Sweden considered as low diversified are doing better than average on the long term (e.g. 2008) and even out-performing the diversified companies. In Denmark both high and low diversified companies are able to show and EPS, which is consistent with or a little better than the average. Here the highly diversified companies are able to show earnings which are little better than the low diversified.

Companies that stand out in Sweden are Hennes & Mauritz (H&M)[1] in Sweden that shown a consistent increase in performance since 2004 (EBIT show a consistent raise to 1.93 in 2008) and who has four women in both the board and in top management. H&M women accounts for 40 % of the total board members making it one of the highest performing companies in the survey both in terms of EBIT and gender mix. Also in terms of EPS is H&M among the highest performers having more than doubled its earnings per share in the period to 2.1 compared to 2004. Among the low diversified is Scania[2] doing almost as good as H&M while Assa Abloy[3] more than halved its EBIT in 2008 compared to the 2004 results to 0.4. In terms of EPS Scania was again the best performer at 2.06 while Tele2 was doing worse than in 2004 consistently over the period and was at 0.89 in 2008.

In Denmark several of the highly diversified companies have more than doubled their EBIT (Carlsberg, D/S Norden and Rockwool)[4] but there are also several companies that have lost terrain such as Danisco[5] who lost over 40% to 0.59. Among the low diversified is DSV[6] the best performer at index 1.43 while Lundbeck[7] is the worst performing at index 0.92. Several of highly diversified companies have an EPS around index 2.0 and above (Carlsberg, D/S Norden, Roskwool and Sydbank). Most of the companies among the low diversified have increased their EPS in the range of 1.3 to 2.24 in the period.

These results can be interpreted in relation to a stereotypical understanding or the traits of men and women. When analysing the results of the highly diversified companies they can be explain using the trait of adaptability and being risk averse (Cadsby & Maynes, 2007, Daruvala, 2007). As the market leading up to the financial crisis changed rapidly and new opportunities arose were companies that were willing to adapt their business model to these changes were also able to harvest new opportunities. Hereby they could increase their earnings rapidly and produce above average EBIT results in 2007. When the crisis started in the mid 2008 the ability to adapt to changes in the business environment again became a competitive parameter. Businesses could use the trait of adaptability and use it in dampening the impact of the rapid decrease of trade on the global market place. At the same time have more gender diverse companies have been accepting less risk in their financial transaction and thereby experienced fewer losses. Companies that was receptive to changes in the market could thereby react effective and utilise opportunities before their competitors. The same companies were also able to use their knowledge to assess the risks that they were exposed to more efficiently and take action in time to reduce their loses when the market changed. The combination of being adaptable and risk averse help companies that are willing to embrace these characteristics, as they become highly competitive and able to react to changes in the marketplace.

Like the feminine traits can explain the results of the highly diversified companies (during the financial crisis) the same approach can be used in understanding the results of the low diversified companies. Male stereotypical behaviour prescribes that men are more likely to demonstrate traits that are associated with informalism and paternalism which in-turn create more rigid forms of organisations (Maddock & Parkin, 1993). This means that male dominated companies would be slower to react to changes in the environment, and they will be less likely to have connections with more distant stakeholders. A strong connection to a mentor can reaffirm that changes in the market should not be taken notice of because the mentor himself does not understand the significance of the change. The changes in EBIT among the low diversified companies are inline with this perspective as they missed the opportunities that arise in the market and were slower to adopt their business model resulting in lower than average performance.

Gender arguments can also be used to explain the changes in EPS. Companies that have a higher proportion of women have fewer tendencies to focus on shareholders as the only stakeholder than male dominated boards and top management. Women will be more likely to incorporate more distant stakeholder into the business decision process because of the trait of being collective thinking. This trait favours the company overall survival and wellbeing rather than keeping one stakeholder content, e.g. shareholder. Collective thinking favour long-term sustainability of the corporation rather than dealing with the immediate crisis and relying on keeping the shareholders content. In highly diversified companies shareholders are being cared for when earnings are high, but when the crisis hits the focus is on the company and its long-term survival and the EPS is reduced dramatically. Keeping in mind that the EBIT was considerable higher among highly diversified companies the results can be interpreted as these companies less diversified organisations are consolidating and focusing on retaining enough liquidity to maintain the level of EPS. In times where businesses have to change in order to maintain profitability the masculine trait of entrepreneurialism becomes valuable. Being able and willing to take risk is what traditionally have been the characteristics that have differentiated companies and the same applies here. However, the situation that companies is facing can be made worse if management and board is unable to evaluate the risk that they are taking and more or less guessing what the future will bring. This could be an ok situation if everybody did the same and nobody had a clear advantage thereby creating a situation where there was no clear advantage to anyone. However, a higher degree of stakeholder engagement will facilitate an improvement in quality decision-making and thereby an improved risk calculation. This means that companies that are able to display feminine traits have a clear advantage compared to companies who have to rely on their ability to guess and take risks, which might or might not pay off.

The WHY of women on boards

Should there or should their not be quotas for women on the board? It seems to be a ever present question for legislators around Europe and now it has surfaced again in the UK. Here a UK government-backed panel has investigated the role investors can play in boosting the number of women on company boards. The panel, headed by former Standard Chartered Chairman Lord Davies, has recommended that FTSE100 listed companies should be aiming for a minimum of 25% female board member representation by 2015 – although it stopped short of advocating strict quotas. However, they fail to answer a vital question that is essential for both the women and the organizations that they could be leading, namely – Why?

There is plenty of evidence to suggest what impact that gender have on organizations but it seems that this research is to a large extend ignored by organizational executive managers and governments alike. Normally we would like to think that our leaders are relative rational in their decision-making processes but it would seem that when it comes to gender it is all about how you feel.   

In my own research have looked into this subject and I have found plenty of evidence that would suggest that organization can benefit from taking a gender perspective on their performance. In this context they question of why it would seem to me is of the utmost importance.

So when the Financial Reporting Council is called upon to amend the Corporate Governance Code and to require listed companies to establish a policy concerning boardroom diversity it is more a “feel good” amendment than anything else. This is highlighted by the recommendation that firms should periodically advertise non-executive board positions to encourage greater diversity in applications again not confronting the ever present question of – Why?

The Davies report says that the “The Financial Reporting Council should amend the UK Corporate Governance Code to require listed companies to establish a policy concerning boardroom diversity, including measurable objectives for implementing the policy, and disclose annually a summary of the policy and the progress made in achieving the objectives” and that investors should pay close attention to its recommendations when considering re-appointments to a company board. “Investors play a critical role in engaging with company boards.” This would indicate that investors have a clear interest in more boardroom diversity but where is the evidence?

So because the board and executive managers can’t come up with any good reasons why women should be on the board we should leave it to activist shareholders to implement change? I don’t want to sound to bitter but it is a bleak picture that is being drawn out there and I know we can do better than this.

Furthermore the review states that “A separate section of the annual report should describe the work of the nomination committee, including the process it has used in relation to board appointments. Chairmen should disclose meaningful information about the company’s appointment process and how it addresses diversity in the company’s annual report including a description of the search and nominations process.” So now companies have to disclose meaningful information about themselves this is truly innovative and new (a hint of sarcasm can be inserted here). That they would even commit these words to papers seems beyond reason.

One good thing about the review is that it calls for full disclosure of the number of women on boards and in companies as a whole. This information can be used by researchers and opinion makers to move the debate from the arena of feelings and “feel good” statements to facts and science.