Company gender diversity good for innovation
Best innovation results in a company are reached when both the board of directors and the top management team have a high participation of women. Studies show that the “business case” for gender diversity in senior leadership positions continues to be favourable, three professors argue presenting their studies in LSE Business Review. They note the recent backlash against diversity programs illustrated by president Donald Trump’s executive order to stop federal DEI programs. Many big companies have already announced that they are downsizing their diversity programs.
“We show how the best innovation results come about when both the board of directors and the top management team have above average participation of women”, write Michel Hermans, Professor at IAE Business School, Universidad Austral in Argentina, Melanie Lorenz, Associate Professor at Florida Atlantic University. and Marcelo J Alvarado-Vargas, Associate Professor at the University of Toledo (Ohio, USA).
“Because of their different life experiences and careers, women can bring to the team alternative strategic perspectives, diverse decision-making criteria and access to additional information. When the gender composition of the team changes, a shift in team-level cognition occurs. A large body of empirical research supports this logic, reporting associations between increases of gender diversity in senior leadership groups and firm-level financial outcomes such as profitability, sales growth and stock returns.”
“These studies generally use samples with a restricted range, where women represent between 10 and 20% of directors or top managers on average. Thus, compared to firms that have no or very few women on their senior leadership groups, those with even a small amount of gender diversity perform better.”
The professors write that their sample comprises the most innovative public companies listed in the US, with board gender compositions that ranged from 0 to 45% and top management gender composition between 0 and 56%.
“When a critical mass is achieved, there’s a greater likelihood that gender-based subgroups will be formed. This will strengthen directors’ and top managers’ attention to new information and alternative perspectives and approaches.”
However, they write that at high levels the benefits are more limited and additional information may become excessive, reduce group cohesion and cause conflicts that undermine performance.
They write that more generally, decisions regarding what technologies to invest in and how to manage specific projects to obtain patentable outcomes involve high levels of uncertainty.
“These conditions compel the board and top management to share tasks such as strategic visioning, goal alignment and information processing.”
“Because of these collaboration requirements, the relationship between different strategic leadership groups becomes increasingly important. When their gender compositions are similar, the outcomes of their collaboration are positive.”
“The poorest results occur when they have opposing gender compositions (high presence of women on the board of directors, low on the top management team, and vice-versa). When the gender composition of both groups is at average levels, innovation is somewhat stronger.”
“The best innovation results come about when both the board of directors and the top management team have above average participation of women.”
They write that simultaneous increases of gender diversity for top management and the board extend the initially positive effects.
“When diversity is one standard deviation above the average, firms obtained almost 60% more patents from their innovation efforts. This means that a strategic leadership group’s gender composition not only has consequences for its own functioning, but also for interactions with other groups.”
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