Portrait of a female executive

Guest Blog Post by Patrick W. Dunne

Last month, Hillary Clinton criticized the gender gap in Silicon Valley. “We can literally count on one hand the number of women who have come [to Silicon Valley] and turned their dreams into billion dollar businesses,” she said. “We cannot afford to leave all that talent on the sidelines.” Clinton cited several statistics, including one which highlighted that women only make up 11% of Silicon Valley executives.

It’s true that there are far less women leading companies or holding board positions when compared to men who do the same thing, but there are many great reasons investors should consider putting their money towards female-led companies. Just as Shark Tank’s Kevin O’Leary.

“Women make better CEOs. All things being equal, given the choice between a woman and a man, I would pick the woman every time,” said O’Leary during a CNBC event last month. “I’ve invested in 20 different entrepreneurial and mid-cap companies and I’ve made more money with the women executives. It’s that simple.”

O’Leary said that 55% of his investment portfolio consists of companies with female CEOs. Female-led companies provide him with faster exits and higher returns, he said. “Attributes that I have observed are that they take less risk, they are more goal orientated in terms of setting targets and meeting them,” he said. “If they say, ‘I am going to expand capacity or we’re going to increase distribution in the next quarter’, they deliver. It’s not an intuitive feeling. It’s actual hardcore results.”

His beliefs are backed up by data. A Catalyst report compared the performances of the Fortune 500 with the most women on board and the Fortune 500 companies with the least amount of women on board. On average, companies with the most women on board earned, at least, a 53% higher return on equity, a 42% higher return on sales, and 66% higher return on capital when compared to companies that had the least amount of women on board. The most successful companies had three or more women on board, the study found. These results held true for companies across most industries.

A study from Credit Suisse found similar results. Their charts clearly indicate that companies with a market cap of over $10 billion and have at least one woman on board greatly outperform companies with a market cap of over $10 billion and have no women on board. This holds true in several countries.

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The report also found that companies with female CEOs received an average ROE of 15.2%, compared companies with male CEOs which received an average ROE of 11.9%. Additionally, companies that had women in over 15% of senior management roles received an average ROE of 15.1%, while companies that had less than 10% of women in senior management roles had an average ROE of 11.9%. Companies with more women in senior management roles received greater ROEs in every sector except of energy, where there was a 0.1% difference.

Why are companies with more women on board more successful than male-dominated companies? There is no single answer, but there are a lot of different possibilities. Having a diverse workforce has several benefits – different backgrounds and ideas lead to greater creativity, greater knowledge of how to market towards different demographics, and a collaboration of different leadership styles.

Diversity also leads to lower turnover, especially in tech companies. Employees who feel excluded are more likely to act unethically and leave the company. An Entrepreneur article by Kieran Snyder collected stories of 716 women who have left the tech industry. Over a quarter of those women reported that they felt discriminated against or that they didn’t fit in with their coworkers. A woman named Dinah explained why she quit her front-end developer job after eight years:

“Literally 28 of the 30 people in our company were white, straight men under 35. I was the only woman. I was one of only two gay people. I was the only person of color other than one guy from Japan. My coworkers called me Halle Berry. As in, ‘Oh look, Halle Berry broke the website today.’ I’m pretty sure for some of them I’m the only actual black person they’ve ever spoken to. Everyone was the same, and no one was like me. How could I stay in that situation?”

High turnover rates cost companies thousands of dollars that could otherwise be invested in marketing, innovation, or pretty much anywhere else. It also costs the company a lot of time spent finding and training new employees. These companies are very inefficient as they waste resources trying to constantly replenish their staff members.

Furthermore, high turnover rates are also an indicator of employee satisfaction. Unhappy employees are more likely to act dishonestly and tend to be less productive which, in turn, makes the company less prosperous.

Women may make up the minority of CEOs and business leaders, but there are still many successful startups founded by women and plenty of organizations dedicated to promoting and empowering female leaders in the business world. Supporting female-led companies is not only great for promoting gender parity, but is also great for making money. Next time you’re wondering which startup to invest in, try counting the number of women they have in senior positions.

About the author

Patrick W. Dunne is currently a writer for SMBAdviser.com and mostly writes about topics like business, leadership, productivity, finance, and marketing. He graduated from Chaminade University with a B.A. in Business Administration and a minor in Psychology. If you wish to contact him, send an e-mail to wingkon@comcast.net or send a message to his LinkedIn profile.

(Image Source: Bureau of IIP/Flickr)

 

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