There has long been a confusing debate around gender diversity in executive teams. While some reports have shown that having more women on corporate boards improves company performance including sales, profits and firm value, academic research has found little or no effect on a range of performance metrics.
A new study led by the Wo+Men’s Leadership Centre at University of Cambridge Judge Business School – unveiled in advance of International Women’s Day (Friday 8 March) – addresses this inconsistency by looking at gender balance in top management teams (TMTs) in small and medium sized enterprises (SMEs) in China.
The White Paper concludes that the impact of TMT gender balance is greater when firm conditions are adverse (past performance has been consistently low), but matters little in favourable conditions (when past performance is consistently strong).
“The findings hold important practical implications for organisations, and helps resolve some of the prior research inconsistency in this area,” says Sucheta Nadkarni, Director of the Wo+Men’s Leadership Centre and Sinyi Professor of Chinese Management at Cambridge Judge. “The White Paper finds that gender diversity in TMTs can act as a built-in safeguard in combating adversity.”
Consistently low past performance harms firms both internally and externally, and can threaten firm credibility, the study says.
“Getting firms out of this performance adversity and back on the upward performance trajectory is a difficult challenge for the executive team and requires strong vision and innovative, out-of-box thinking. We expect that gender diversity will provide the diversity of perspectives and effective processes essential to achieve such performance turnaround,” the study says.
The White Paper – entitled “When does gender diversity matter the most? Executive team gender diversity and firm performance during adverse and favorable situations” – was done by Sucheta Nadkarni of Cambridge Judge Business School, Shi Tang of Cambridge Judge Business School, Liqun Wei of Hong Kong Baptist University, and Stephen Zhang of the University of Sydney.
The study focused on TMT gender diversity in high-tech enterprises in China, because the number of Chinese women in science, technology, and entrepreneurship has risen sharply in recent years – with many holding executive positions in SMEs.
The White Paper was based on responses from 122 Chinese hi-tech SMEs with 387 TMT members; the firms were at least six years old and had 10 to 500 employees.
Performance data was collected in two time periods, which allowed researchers to separate time frames for performance in computing adverse and favorable conditions – with turnaround performance based on profitability, return on equity and return on assets. In all three performance categories, a high percentage of women in TMTs had a strong positive impact in adverse firm conditions but such a high percentage of women had no significant difference in favourable firm conditions.
These results matter because organisations may not see the day-to-day benefits of gender diversity in senior leadership, and therefore choose to invest less in fostering it. Yet they may be missing big opportunities in reaping the benefits of TMT gender diversity when it matters the most: during tough situations.