The Business Case for Women Leaders

We know that diversity brings different viewpoints, backgrounds, and experiences to teams within organizations. But the benefits go beyond internal dynamics: numerous studies have shown that greater gender diversity in the workplace correlates to stronger company performance.

A meta-analysis of 117,630 organizations evaluated the link between women’s leadership and business performance [4]. Researchers analyzed various leadership roles within companies (CEOs, top management, and board members) and different measures of financial performance (return on investment and sales performance). The study found that women leaders, especially CEOs, positively correlated with company performance. Similarly, other research analyzed for-profit business performance data from the 1996-1997 National Organizations Survey [2]. Results showed that organizations with high gender diversity were more likely to have higher profitability, greater sales revenue, and more customers than organizations with low or medium gender diversity — even after controlling for variables like company size, organization age, industrial sector, and region.

Evidence also shows that having women on company boards correlates with higher firm performance. One study analyzed the performance of companies listed on the Australian Security Exchange 300 index (ASX300) [1]. The study was based on stakeholder theory, which holds that businesses are rooted within society and thus have some responsibility to do social good. Researchers analyzed how women’s communal traits, including concern for others’ welfare, affected female board members’ concern for stakeholders beyond its financial backers (i.e., shareholders). The study found women board representation to be indirectly correlated with stronger financial performance, because women were more likely to support pro-social activities like corporate social responsibility (CSR), which in turn directly correlate with stronger business performance.

How can practitioners use the evidence above in combination with behavioral science to reduce implicit gender biases among hiring managers?

The framing effect is one of the strongest cognitive biases in judgment and decision making [10]. Differences in wording or settings can highlight positive or negative aspects of a choice, leading to changes in perceptions about its attractiveness. Kahneman and Tversky’s famous 1979 study also demonstrated framing as it related to their earlier model of prospect theory, which showed that humans perceive losses as more significant than gains of equal value. In other words, humans are easily affected by loss aversion, such that losing $75 feels more negative than gaining $100 feels positive.

By framing the potential financial risk of not hiring more women leaders, practitioners can attempt to persuade hiring managers – especially executives who have a direct interest in firm financial performance – to hire and promote more women leaders. Take the following example: knowing that organizations that have 30 percent female executives earn up to 6 percent more in profits [9], practitioners can communicate the risk of losing $30 million for a company who earns $500 million in revenue per year.

Confirmation bias is based on a cognitive heuristic – or mental shortcut – that gives more weight to evidence confirming our beliefs than to evidence opposing them. While we’d like to think our beliefs are always rooted in solid evidence, we may be more likely to avoid or dismiss differing viewpoints once we’ve formed an opinion.

Charles Lord and others’ classic 1979 study effectively illustrated the human tendency for biased reasoning [6]. Researchers investigated whether presenting confirming or disconfirming evidence on the death penalty changed participants’ strongly held views. The study showed that when presented with evidence against their views, their original beliefs became more firmly rooted. This attitude polarization became known as the biased assimilation effect.

Five years later, the researchers conducted a follow-up study that suggested it may be possible to counter confirmation bias by asking individuals to “consider the opposite” of their existing beliefs [7]. In two parallel experiments, participants again were presented with evidence confirming or disconfirming their beliefs about the death penalty. In the first experiment, participants were explicitly told to be “as objective and unbiased as possible in evaluating the studies” on the death penalty. In the second experiment, participants were given instructions to “ask yourself at each step whether you would have made the same high or low evaluations had exactly the same study produced results on the other side of the Issue” – the “consider the opposite” strategy.

The differences between the two groups were clear. When participants were explicitly instructed to be impartial and unbiased, they showed the same biases as in the original 1979 study. When participants were asked to “consider the opposite,” they reduced their confirmation bias and avoided favoring evidence that confirmed their existing beliefs. These findings suggest that, when given the right strategies, humans can overcome natural instincts to grasp evidence in line with current beliefs.

“Considering the opposite” during the hiring process may be a useful technique to overcome implicit bias. For instance, what if prior to interviewing candidates, hiring managers had to identify specific ways a diverse hire could benefit the company or team? Evidence suggests this strategy can help counter the confirmation biases that hiring managers often have about women’s leadership skills.

Implicit gender biases aren’t the only reason there are so few women leaders. Family choices, career interests, and a host of other reasons likely all play a role. But for the women who want a fair shot at the corner office, it’s important to reduce implicit gender biases among hiring managers and make it clear that women leaders can benefit companies’ bottom lines. Then, maybe, we’ll get one step closer to gender equality in the workplace.