When Not Hiring Women is Bad for Business (Hint: It’s All the Time)

Written by Jordan BlansitUpdated: 5th Apr 2022
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March was Women’s History Month – and yes, we’re a bit late to the table. (Shame on me, really.) Still, our delay to this particular party provides an opportunity not to contribute to the cacophony of related articles, but to capitalize on a handful of nominal events and springboard into a larger discussion on women, business, and the global economic good.

So, that’s just what I’ll do.

Big Moves, Small Wins

In the last two months, three high-profile decisions have thrown a spotlight on the fight for gender equality in the workplace.

First, in late February when the U.S. Women’s National Soccer team won a historic settlement against the U.S. Soccer Federation. The suit alleged that the Federation had engaged in pay discrimination between the men and women’s teams – despite the women’s team kicking its way to significant victories more often. The Federation agreed to $22 million in back wages and equal pay going forward.

The lawsuit was a launchpad for President Biden’s executive order to ensure equal pay for federally contracted employees. Then, the Labor Department followed it up with a new initiative to strengthen federal contractors’ obligations to guard against gendered pay disparities. Between these two proposals, the administration hopes to address the wage gap at the federal level and beyond.

Each of these wins were quite visible and well-publicized. But ultimately, they are at best a starting point, if not little more than grandiose gestures, that affect only a fraction of working women today. If we hope to affect real change in our lifetimes, it will take a systematic reconsidering, not just high-profile lawsuits and declarations.

The Unique Hurdles Faced by Working Women

Even now in this age of women’s progress, they seem to be slipping backward. Consider that women’s participation in the U.S. workforce (one of many contributors to the wage gap) hit a new low in 2021. Perhaps it had something to do with the fact that more women than men lost their jobs, or that they did three times as much childcare as men during the pandemic.

But for those women who remain in the workforce, life isn’t always easy. Last week, the Harvard Business Reviewpublished a new report exploring the experience of women in the workplace. Among its findings, the review found that:

  • Women in upper management roles earn less than their male counterparts even under female leadership
  • Firms invest less in women when countries mandate increased parental leave, and yet
  • Firms in crisis are more likely to appoint women leaders, setting them up for failure from the get-go
  • Women are more likely to face retaliation for objections to problematic individual and corporate behaviors
  • Women are more likely to take on menial tasks and less likely to ask for deadline extensions, increasing their stress while achieving less career growth

These conclusions suggest that, while many companies claim to recognize the need to bring women into the workforce, once there, they struggle to adapt their cultures or provide necessary tools to keep women on the corporate ladder.

And unfortunately for these companies, their sluggishness in bringing about real, lasting change may be costing them dearly.

Why Bring Women into Business? It’s Simple: $$$

Mountains of evidence suggest bringing women into the workforce is good for more than image or morale. Those companies that successfully onboard and retain female employees become more flexible, see greater innovation, and rake in larger profits than those that don’t.

Findings from Venture Capitalism

Studying gender diversity and financial performance in venture capitalism (VC) is historically difficult due to:

  • The risk-taking nature of venture capitalism that makes predicting (or obtaining) steady results impossible
  • VC firms’ habit of collaborating with similar companies, thereby reducing their own performance
  • Conceptual homogeneity, where senior partners are more likely to hire others like them: white, college-educated men with similar attitudes toward risk
  • Rampant “bro cultures” that exclude women who do make it in the door

But many of these same challenges are exactly what make venture capitalism the perfect petri dish for experimentation. Because women don’t saturate the industry (on average, just 10% of new hires are women), and since they tend to be more risk-averse in financial matters, firms that do hire women provide valuable insights into how gender affects business.

“The Daughter Effect”

A 2017 study conducted by researchers at the Harvard Business Schoolfound that one of the biggest hallmarks of a VC firm’s success was how many daughters senior partners had.

The study built off past research that found parents of daughters are more supportive of gender equity than those with sons. This pattern only strengthens as daughters age into adolescence and become more likely to encounter “real” discrimination. The study also factored in firms’ homogeneity as a crucial part of their hiring and investment pattern, instead of trying to discount it as a difficulty.

All told, the study’s authors found that having more daughters among VC firms’ leadership increased their likelihood of hiring women. And the difference just a few women made was profound: by increasing female partnerships from 8% to 18%, VC firms saw a 1.5% spike in overall fund returns. Similarly, firms’ profitable exits leapt nearly 10% –an impressive feat in an industry where profitable exits occur less than 30% of the time.

Looking At You, London

Let’s switch lenses to take a broader view of women in the business world.

For instance, when we look at research based out of London, England, one 2020 report found that London-listed companies with more diverse gender leadership showed “stark differences” in their net profit margins.

Consider that, of the 350 largest listed London companies, just 14 were led by women, while 15% of those employed zero female executives. Dissecting these metrics another way, in the largest 100 London-based firms, the total number of female chief executives equaled those who employed a boss named Peter. (6, for the curious). Meanwhile, fewer than 2 in 10 London CFOs are women, while men comprise a full 96% of investment management roles.

And yet, firms with at least 33% of leadership roles chaired by women boasted net profit margins over ten times greater(15.2% compared to 1.5%) than male-dominated businesses.

Stepping Out on the Global Stage

When you step out of the high-profile world of venture capitalism and big business, similar findings on gender and business performance lurk around every corner.

For instance, the World Economic Forum’s Global Gender Gap Report found that countries with larger gender gaps see worse economic performance year over year. This suggests that bringing women into business provides invaluable experiences, insights, and innovation across business models and sectors.

Other studies dive deeper into the specifics – so, we thought we might as well join them. Everybody got their scuba suit?

The Case for Investing in Women: Findings from the Anita Borg Institute

One study, released by the nonprofit Anita Borg Institute for Women and Technology, examines how hiring women into leadership and senior roles affects business. While you should definitely read the study here, we’ve selected a few of the most impactful statistics:

  • Patents produced by mixed-gendered teams are cited 30-40% more frequently, suggesting that hiring women leads to better product designs
  • Fortune 500 companies with at least three women directors see a:
    • 42% average increase in return on sales
    • 53% average increase in return on equity
    • 66% average increase in return on investment (ROI)
  • According to a London Business School survey in 17 countries, the “optimal” number of women in business is:
    • 50% for supporting psychological safety
    • 50% for supporting team experimentation
    • 50% for supporting team efficiency
    • 60% for supporting team self-confidence
  • Teams with at least one female member improve the collective IQ regardless of each individual’s personal IQ
  • Organizations that hire and retain women in diverse teams enhance their company reputation and see 22% lower turnover

The “Pipeline Effect”

Data from the Peterson Institute for International Economics and EYfurther bolsters the case for women in business. Together, these groups analyzed nearly 22,000 global, publicly traded companies in 91 countries across industries and sectors. Worldwide, the authors found, companies comprised of at least 30% women in leadership roles saw a 6% increase in net profits.

The study also looked at how a country’s parental leave policies impacted women in business. Unsurprisingly, countries with mandated maternity leave didn’t produce more women leaders. Once a woman leaves her job, it’s notoriously difficult to resume the climb on the corporate ladder, which remains a significant contributor to the global wage gap.

However, countries that offered mandated paternity leave did see more women leaders, as those countries split the burden of childcare on both genders equally. This offered women the invaluable opportunity to continue networking and building business acumen that many working mothers are often denied in more patriarchal societies.

And, finally, while the study found that female CEOs don’t “systematically outperform” their male counterparts individually, simply having more women in senior positions contributed to a pipeline effect that bolstered profits. In essence, hiring more women into the C-suite encourages more female hires company-wide, from entry-level to management roles, securing more opportunities for women to climb the ladder.

What Makes Women So Valuable for Modern Businesses?

Thus far, we’ve established that firms (and even entire countries) with greater gender diversity perform better. But pinning down just why that’s true is a slightly more arduous task.

Naturally, that won’t stop us from trying.

#1. Hiring More Women Makes Firms More Open to Change…

Firms that hire more women into their leadership suites become more open to change. As team dynamics shift in favor of greater flexibility, businesses grow more able to maneuver modern landscapes. Moreover, these firms increasingly embrace positive transformations that impact workers, managers, and consumers.

The reason for this is two-fold. The first is that women executives are less likely to openly challenge the status quo while being less likely to care about tradition. Over time, this attitude increases a group’s receptiveness and open-mindedness.

Secondly, as male-dominated companies welcome more women into the fold, they’re more likely to hire more women down the pipeline. The spread of shifting demographics encourages further change at all levels of business and leads to the benefits we’ll explore below.

#2. And Less Open to Risk

We’ve already established that, traditionally, women are more risk-averse than men in finance and elsewhere. And in business, taking fewer – or more calculated – risks can translate into better profits. While some large risks pay off handsomely, taking too many risks often hemorrhages more capital to losing bets, lowering total profits.

Firms that add female executives often pivot from an aggressive, traditionally masculine approach to one built on internal research and development. A more collaborative approach is linked to the company’s decreased affinity for risk. In essence, instead of going out and making more questionable acquisitions or focusing in the wrong markets, they’re more likely to “look before they leap” and make more informed decisions from the outset.

#3. Women’s Spending Power Leads to Better Consumer Insights

Women make up 50% of the earth’s human population. And yet, demographic data from Nielson suggests that women will command 75% of discretionary spending power by 2028. That puts global economic influence squarely in the hands of women.

Since women are already largely responsible for the majority of new household purchases, bringing women into business can provide better insights into consumer preferences in all kinds of arenas, from groceries and household cleaners to furniture and pet supplies. Hiring such invaluable market research in-house can help inform a company’s research and development, marketing, and sales teams on the best ways to build and sell desirable products.

#4. Differences in Thinking Styles Leading to Increased Innovation

On a similar note, research finds that companies that treat men and women more equally are up to six times more innovative than companies that don’t. Generally, diverse groups (by any metric) tend to perform better than homogenous groups, even when individuals in a homogenous group are deemed more individually capable. This suggests that group intelligence spans metrics beyond what we think of as “normal” intelligence; that in fact, introducing new perspectives and patterns of thought matters more than a single person’s ability to wrangle a problem.

And when women join the echelons of upper management, they don’t just bring new perspectives – they tend to alter the thinking style of the entire management team. Their presence and ideas allow companies to examine familiar problems in new ways and tackle issues from novel angles. And when businesses redefine how they think about thinking, they flourish.

#5. More Socially Responsible

Welcoming more women into management and leadership positions has another unique impact: improved corporate responsibility. Essentially, the more women a company has, the more likely it is to:

  • Make more environmentally considerate decisions
  • Treat employees better
  • Properly address sexual harassment claims
  • Smooth over relations with entities down the supply chain
  • Create more ethical, healthy, and environmentally conscious products

Ultimately, this translates to fewer massive fines, headline-worthy disasters, and PR cleanup campaigns.

Want to Improve Your Business? Close Your Gender Gap

Despite all the handwringing about diversity and equality in public-facing companies, the corporate powers that be often toot two horns: one in public, and another behind closed doors. But the data is quite clear: hiring more women leads to better innovation, higher collective intelligence, greater flexibility, and increased profits across the board.

In other words, hiring women isn’t just a good look – from a business standpoint, it’s stupid not to.

Jordan Blansit
Jordan Blansit

Jordan Blansit is a Senior Writer, Researcher, & Product Analyst for SimpleMoneyLyfe with an inexplicable predilection for mortgages, investing, and personal finance. When she’s not click-clacketing from the comfort of her living room, you can find her in the California Redwoods or Oregon Siskiyous. Jordan’s areas of expertise are mortgages, personal loans, credit cards, and investing.