Research Findings

When gender diversity makes firms more productive

May 14, 2020

Does gender diversity make an organization more productive?

Some say yes, suggesting that gender diversity could lead to more innovative thinking and signal to stakeholders that an organization is well run. Others say no, pointing to group research showing that demographic diversity could lead to conflict and reduce team solidarity.

But while past research has been conflicting, most have looked at this question only within a single country or industry. This oversight got me thinking: could social context play a role? Social norms and regulatory context could affect people’s approaches to and attitudes toward diversity, which might, in turn, influence diversity’s organizational impact overall. 

This is exactly what I found in my recent research. In a study of 1,069 leading firms across 35 countries and 24 industries, I found that, as measured by both market value and revenue, gender diversity correlates with more productive firms only in contexts where gender diversity is normatively accepted. 

In other words, beliefs about gender diversity create a “positive feedback loop” from which industries with higher-levels of normative acceptance — referring to the widespread cultural belief that gender diversity is valuable — are more likely to benefit. Those who don’t uphold those beliefs actually end up missing out. 

For example, I found that the percentage of women in telecommunication companies in Western Europe, historically a relatively gender-inclusive context, was significantly tied to a company’s market value. Specifically, a 10% increase in gender diversity related to a roughly 7% increase in market value. However, in the energy sector in the Middle East, which has historically not been gender-inclusive, firms’ gender diversity was entirely unrelated to company performance.

Interestingly, I saw the positive effects of gender diversity in societies with normative acceptance of working women, but not in societies with only regulatory support. Though regulatory support of working women is correlated with normative acceptance, they are not the same. Some countries have strong cultural support, but few legal structures in place. Others have established legal structures, but cultures that are strongly male-dominant.

Japan, for instance, has some of the most generous parental and homecare leave policies globally but also suffers from stiffly-patriarchal work cultures. I found that firms in countries like Japan, with its offering of regulatory support, do not benefit as much from gender diversity when compared with firms in places that have more cultural acceptance, such as Western Europe.

My international comparisons revealed the striking importance of a country’s diversity norms, such as gender role attitudes. The data suggests that to reap the benefits of diversity, workers have to subscribe to the value of diversity — and rules and laws won’t necessarily get us there. Diversity has a positive impact when people believe in its intrinsic value, rather than merely viewing it as an obligation.

It is important to note that although the theory assumes a causal effect, my empirics only show correlations between gender diversity and firm performance. It is possible that higher-performing firms are more likely to embrace gender diversity in normatively accepted contexts, or that other factors drive both firm diversity and performance. Nonetheless, this study demonstrates a clear link between gender diversity and firm performance and that it varies across social contexts.

In sum, the link between diversity and company performance may not be as black and white as we once thought. Like many aspects of business, the effect of diversity is socially dependent, especially on country and industry norms around gender diversity and inclusion.

Read more

Letian Zhang. “An institutional approach to gender diversity and firm performance” in Organization Science 2020.

Image: geralt via pixabay

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