Since the financial crisis of 2008, many business leaders and governments in OECD countries have been supporting the ‘‘business case’’ argument for gender diversity in leadership positions. This argument states that more diversity is good for business, because it generates more creativity and reduces biases, among other benefits to firm performance. Many large firms have implemented diversity policies to increase the share of women in leadership. Yet, actual progress towards more diversity in leadership has been slow. A review of the main policies implemented suggests that some policies have been ineffective, whereas others are more promising.
The ‘business case’ for diversity argument first appeared in the management literature in the 1990s. It states that firms that manage diversity well and have diversity at all levels of the corporate hierarchy tend to perform better. The business case argument created a shift in public policies, which led to the implementation of policies such as gender quotas on boards of directors in some countries. The 2008 financial crisis led to an increase in support for this argument, as some political and business leaders argued that the financial crisis may have been avoided had there been more gender diversity in leadership in the financial sector. This led large firms to implement policies to improve representation of women in leadership positions. And yet, despite this support, progress has been slow.
We use a 2019 dataset covering 3,800 large firms from Organisation for Economic Co-operation and Development countries to document the extent to which these firms had implemented policies in favour of gender diversity and how these policies related to diversity at different ranks in the firms. We find that nearly 80% of firms had at least a diversity statement or policy in place. However, we find that the share of women in leadership positions remained low: 21.4% on boards, 15.8% in C-suite positions, and 24.6% in management positions, on average. We find large heterogeneity by country: large firms from Sweden and Norway had the highest percentage of women in the C-suite (close to 25%), whereas firms from Japan and South Korea had the lowest (around 3%), and Dutch firms had 17.2%.
'Firms that have implemented family friendly policies tend to have a higher retention rate of women, but these firms are often in lower-paying and lower-skilled sectors.'
We conducted regression analyses, where the dependent variables are the percent of women in firms’ boards, C-suites, and management positions, and which we related to different types of diversity policies implemented. We find significant positive correlations between having a formalised gender diversity policy in place and the percent of women in leadership. However, slow progress may be partly explained by supply-side factors, such as gender differences in higher education program choices and labour market segregation. We find that these factors correlate with the share of women in leadership positions in firms. We also find that strong public policies, such as binding quota policies on boards, lead firms to increase the share of women in leadership positions.
Over the past decade, some economists have focused their research efforts on using natural, field and lab experiments to examine the effectiveness of common policies firms implement to increase the share of women in leadership. These policies include gender quotas, diversity training programs, networking and mentoring programs, as well as family-friendly policies. Our review of this literature suggests that these policies yield mixed results.
We discuss several recommendations about ways to improve gender diversity policies. First, quota policies may be effective when they target the C-suite or lower-level management, where the day-to-day running of the firm is less limited than at the board level. Second, networking and mentoring programs seem to be effective, and, although more research is needed, it seems that these programs should not be based on gender alone: junior female employees can benefit from learning from both men and women at senior levels. Third, research on diversity training programs suggest that many do not seem to work; finding effective ways of improving firm culture is an important area of future research and a remaining challenge for firms. Finally, firms that have implemented family friendly policies tend to have a higher retention rate of women, but these firms are often in lower-paying and lower-skilled sectors. Firms from a larger set of sectors can do more to implement policies that would lower the turnover of their female employees and enable them to reach leadership positions.
Anne Boring
Anne Boring is Associate Professor in the Economics Department at Erasmus School of Economics. She also heads the Women in Business Chair at Sciences Po, Paris. Her research focuses on gender equality in higher education and the labour market, and on policies designed to improve diversity in leadership positions.
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This item is part of Backbone Magazine 2023. The magazine can be found in E-building or Theil-building for free. Additionally, a digital copy is available here. Backbone is the corporate magazine of Erasmus School of Economics. Since 2014, it is published once a year. The magazine highlights successful and interesting alumni, covers the latest economic trends and research, and reports on news, events, student and alumni accomplishments.
