Companies looking to maximize profits have an easier path than spending big to corner a new market or pouring in major cash to invent a revolutionary product. Instead, they can simply ensure women have equal representation in leadership.
That’s according to a new report from BlackRock, one of the world’s largest asset managers.
To be clear, the firm’s findings don’t suggest companies should overdo it by hiring an over-representative sample of women. But companies with the lowest levels of representation for women in leadership roles typically performed worse than companies with the highest levels, according to an analysis of companies in the MSCI World Index from 2013-2022.
And topping both groups were companies in the middle quintile in terms of representation, showing there is a “sweet spot” for representation. Those diverse companies outperformed their peers in terms of return on assets by 29% per year on average. That is, companies with a significant number of men and women at the top of the company tend to perform better than companies that are skewed in either direction.
“Companies closest to parity across key roles, including revenue-producing, engineering and top-paying roles, have outperformed the companies that are furthest away from parity in these roles in terms of RoA over recent years,” read a summary of the report’s finding.
Unfortunately, women still remain underrepresented in leadership roles, meaning many companies could use more women at the top of the corporate hierarchy. BlackRock’s study confirmed that reality, finding gender imbalance decreases with each rung up the company ladder.
The report found that not only do established companies perform more optimally with better gender parity, but that women-owned startups also generate a higher return.
“Women-owned or managed hedge funds have outperformed an average hedge fund by 10.5% over the last 16 years, while a survey of more than 350 startups showed that women-owned startups delivered twice as much per dollar invested compared to those founded by men,” the report found.
Benefits can trickle down to investors in gender-balanced companies as well.
“Investing in companies that promote more women may be associated with positive stock returns. In our own analysis, we looked at women’s representation among promoted employees relative to women’s representation in the workforce overall,” the report said.
“A hypothetical long-short portfolio that maximizes the relative women’s promotions exposure generated 0.72% excess return per year (relative to the benchmarked portfolio of MSCI World Index) over the past four years.”
BlackRock, it is worth noting, has landed in the crosshairs of Florida Republicans due to its push for weighing environmental, social and governance factors in its investing. Last year, the state divested $2 billion from BlackRock to signal opposition to the firm’s social stances.