Fixing the Economy? It's Women's Work.
By Katty Kay and Claire Shipman
Sunday, July 12, 2009
While the pinstripe crowd fixates on troubled assets, a stalled stimulus and mortgage remedies, it turns out that a more sure-fire financial fix is within our grasp -- and has been for years. New research says a healthy dose of estrogen may be the key not only to our fiscal recovery, but also to economic strength worldwide.
The sexy new discussion in policy circles around the world, thanks to the recession, is whether a significant shift of power from men to women is underway -- or whether it should be. Accounting giant Ernst & Young pulled out charts and graphs at a recent power lunch in Washington with female lawmakers to argue a provocative bottom line: Companies with more women in senior management roles make more money. The latest issue of Foreign Policy magazine sweepingly predicts the "death of macho." Economists at Davos this year speculated that the presence of more women on Wall Street might have averted the downturn. Adding to this debate is the fact that the laid-off victims of this recession are overwhelmingly men.
All those right-brain skills disparaged as soft in the roaring '90s are suddenly 21st-century-hot, while cocky is experiencing a slow fizzle.
The numbers make a compelling case. The studies Ernst & Young rounded up show that women can make the difference between economic success and failure in the developing world, between good and bad decision-making in the industrialized world, and between profit and loss in the corporate world. Their conclusion: American companies would do well with more senior women.
And it's not only one study, but at least half a dozen, from a broad spectrum of organizations such as Columbia University, McKinsey & Co., Goldman Sachs and Pepperdine University, that document a clear relationship between women in senior management and corporate financial success. By all measures, more women in your company means better performance.
Pepperdine found that the Fortune 500 firms with the best records of putting women at the top were 18 to 69 percent more profitable than the median companies in their industries. McKinsey looked at the top-listed European companies and found that greater gender diversity in management led to higher-than-average stock performance.
Is there a magic number of women? In some cases, it's just three. Catalyst, a research firm focused on women and business, found that Fortune 500 companies with three or more women in senior management positions score higher on top measures of organizational excellence. In addition, companies with three or more women on their boards outperformed the competition on all measures by at least 40 percent.
It's time to admit the obvious. Men and women are different, and our management styles are different. Research by the University of Pittsburgh and Cambridge University, among others, finds that some of those differences are intrinsic, thanks to hormones.
Gender stereotypes aren't politically correct, but the research broadly finds that testosterone can make men more prone to competition and risk-taking. Women, on the other hand, seem to be wired for collaboration, caution and long-term results.
According to a 30-year study of fund managers released last month by the National Council for Research on Women, female investors and professional money managers used more measured strategies. They didn't take huge risks, but they also didn't lose big. Their returns were consistent. Men took larger risks and wound up with results that varied more widely. A study by the French Fund association found that funds managed by women had more consistent results over one-year, three-year and five-year measurements. Female-managed funds weren't usually top performers, but they were never at the bottom.
Whatever the future, we hardly need to explain why, after all the trouble the testosterone-infused Wall Street culture brought us, a bit of that caution would be a healthy ingredient in our financial mix.
If that all seems too touchy-feely for left-brainers, here's more hard math. The "diversity prediction theorem" is part of the most cutting-edge thinking about best business practices. Scott Page, an economist at the University of Michigan, uses mathematical models to demonstrate that a diverse group will solve a complicated business problem better than a homogeneous group. In fact, diversity is even more important than expertise. In other words, a bunch of white male brainiacs won't usually reach the best conclusions.
There's a sound business reason why Norway now mandates that corporate boards be 40 percent female. Why Iceland, after its embarrassing financial mess, put major banks and its government in female hands. And why Hermes, the only French company to outperform expectations during the recession, also has, you guessed it, a management structure dominated by women.
Americans aren't so enamored of social engineering, of course, so how do we get to that profitable mix? To us, the answer is clear. Professional women have been leaving the workplace in droves, and we need to stop the brain drain. Recent studies show that almost a third of professional women opt out at some point in their careers and, strikingly, that MBAs are more likely than lawyers or doctors to choose to stay home with their children.
Beyond a certain point, many women find that the costs to family of a high-octane career are just too great. We need to recognize that the glass ceiling is in part a self-imposed, defensive perimeter. But we can't afford to have women take themselves out of the running for top slots. And the only way to prevent that is changing the workplace to allow us the freedom to fit in our personal lives.
Luckily, that freedom makes economic sense, too. That's why companies such as Wal-Mart, Capital One, Best Buy, Sun Microsystems and Sara Lee, to name just a few, say they have glimpsed the future of work and have decided it's an extremely manageable place. They've discovered that allowing people to work the way they want -- from home; at night; from the sidelines of the soccer field -- actually increases productivity. Best Buy found that changing the work rules boosted productivity by an average of 40 percent.
And though progress is slow, women are negotiating nontraditional paths to senior management. Witness Sara Lee's chief executive, Brenda Barnes. As a PepsiCo executive vice president, she left corporate America for seven years to raise her children. Her return is a singular achievement, but it suggests a future in which careers can move in waves, not straight up, or straight off of, a ladder.
Corporate America, take the first step toward economic recovery. Open your minds and offices to new ways of working and succeeding. Not because you are nice guys -- but because it will help the economy and your bottom line.
Katty Kay is a Washington anchor and reporter for "BBC World News America." Claire Shipman is the senior national correspondent for ABC's "Good Morning America." They are the authors of "Womenomics."