An extensive 19-year study of 215 Fortune 500 firms shows a strong correlation between a strong record of promoting women into the executive suite and high profitability. Three measures of profitability were used to demonstrate that the 25 Fortune 500 firms with the best record of promoting women to high positions are between 18 and 69 percent more profitable than the median Fortune 500 firms in their industries.
Women in the Executive Suite Correlate to High Profits
The glass ceiling issue is one of the most emotional managerial issues of the past decade. Although a great deal of anecdotal evidence exists, there has been very little empirical work to support even the most basic contentions concerning the issue. One of the areas most in need of evidence involves profitability. It is alleged that firms that have had a good track record of promoting women to the executive suite have found that practice to have been profitable, but there is little empirical evidence that the assertion is, in fact, true.
In order to test that assertion, we evaluated the record of 215 Fortune 500 firms concerning the inclusion of women in the executive suite for the 19-year period from 1980 to 1998. A point system was devised, and the top 25 firms for women were then evaluated on three different measures of profitability relative to the median Fortune 500 firms in their industries for 1998. All three measures demonstrated that higher scores were correlated to higher profitability.
Since the mid-1980s,
advocates for women have worked hard to convince the business world that women
are as capable as men in high executive positions, and that their inclusion in
the executive suite would contribute greatly to the success of a company. The
pioneering book in this area was Morrison et al.’s Breaking the Glass Ceiling,
which brought the term ”glass ceiling” into the lexicon in 1987. This
work was based on interviews with 76 executive women, and was qualitative in
Other books followed. John
Naisbitt argued that the presence of women in upper levels of the organization
would be beneficial, and Driscoll and Goldberg used in- depth interviews to
examine the lives of senior women executives. Helgesen argued that women have a
largely untapped advantage in leadership style and that women’s leadership
styles transform organizations, but none of these excellent books reported
quantitative evidence of profitability.
The Fact-Finding Report of
the Glass Ceiling Commission was a report of the perceptions of women in the
workplace, and did not attempt to connect the presence of high-ranking women
executives to profitability for their corporations. Furchtgott-Roth and Stolba
provided a guide to the economic progress of women and, since 1985, the
advocacy group Catalyst has issued over 30 excellent research reports on
various aspects of progress for women, but none of them have addressed the
issue of profitability with empirical evidence.
There are at least three
reasons why the study was not attempted earlier. First, there have been only a
handful of firms with women in upper level positions, so that it was difficult
to make a valid statistical comparison between the very small number of firms
with influential women and the huge number of firms without them. Expanding the
base number of women-friendly firms was not easy because it was very difficult
to learn which firms had women in the executive suite at levels just below the
very visible positions of President or CEO. Finally, although longitudinal data
is widely regarded as the most solid, it is not often done because the data is
very difficult and time consuming to collect.
Fortune 500 Data
Our study took advantage of
a very large base of Fortune 500 data we collected for the period 1980 to 1998.
The study began in 1992, when each Fortune 500 firm was invited to supply us
with data about the number of women in their top 10 executive positions, the
next 10 executive positions, and the Board of Directors for each year since
1980. Names and positions were provided for validation, with the assurance that
they would not be published. Subsequent data sweeps were conducted in 1995 and
These efforts have resulted
in data for an average of 215 Fortune 500 firms for every year from 1980 to
1998. The longitudinal nature of the database allows us to compare the data for
any year with any other year since 1980, and allows the historical performance
of any responding firm to be studied on a variety of measures.
The Scoring System
Once we tabulated these
data, we devised a system to score each firm on their record for promoting
women to the executive suite. We weighted the pioneering efforts of firms in
the years 1980 to 1992 heavier than the efforts in later years. Two points were
assigned for each woman in a ”top 10” executive position for the
years to 1992, with one point for later years. One point was assigned for each
woman in the ”next 10” positions to 1992, and one half point for
later years. One point was given for each woman on the Board of Directors for
the early years, and one half point for subsequent years. Scores were summed
and firms were ranked in order. The 31 firms that scored the highest (the top
one-seventh) were then evaluated for profitability. Because the survey had
guaranteed anonymity to responding firms, we regret that those firms cannot be
Four Evaluations of Profitability
industries might prefer to use different measures of profitability, three
measures of profitability were used to evaluate each of the firms. Profits as a
revenues, assets, and stockholders’ equity were recorded for each firm, based
on data from the 1999 Fortune 500 list. In like manner, the equivalent figures
for the median Fortune 500 firm in each firm’s industry were recorded. Six of
the firms did not have data available for 1999 and were discarded, leaving 25
firms. The figures for the 25 remaining firms were then summed, and a mean
number calculated. The same was done for the industry medians.
In addition, a fourth
measure of profitability was taken. We determined whether the each subject firm
was higher or lower than its industry median counterpart. This was done in
order to expose the potential situation whereby strong figures for one
dominating firm might obscure a general trend in the opposite direction for the
majority of women-friendly firms within an industry.
The results showed a clear
pattern. Fortune 500 firms with a high number of women executives outperformed
their industry median firms on all three measures. Furthermore, the firms with
the very best scores for promoting women were consistently more profitable than
those whose scores were merely very good.
On the measure of profits
as a percent of revenues, the 25 subject firms outperformed the corresponding
industry medians by 34 percent. The women- friendly firms averaged 6.4 percent
while the average of their industry medians was 4.8 percent. When taken
individually, almost two-thirds of the subject firms (66%) outperformed their
On the measure of profits
as a percent of assets, the 25 subject firms outperformed the industry medians
by 18 percent. The women-friendly firms averaged 6.5 percent while the average
of their industry medians was 5.5 percent. When taken individually, 62 percent
of the subject firms outperformed their median counterparts.
On the measure of profits
as a percent of stockholders’ equity, the 25 firms outperformed the industry
medians by 69 percent. The women-friendly firms averaged 26.5 percent while the
average of their industry medians was 15.7 percent. When taken individually, 68
percent of the subject firms outperformed their median counterparts.
The diligent reader will
note that the results might be sensitive to the number of firms included in the
analysis. If one were to limit the subject firms to only the ”top 10
firms” for women (or ”top 15 firms” or ”top 20
firms”), the results would be somewhat different. In fact, further
analysis showed a direction consistent with the basic conclusion that firms
with a stronger record of promoting women are more profitable.
In other words, the results
of the ”top 25 firms” that are featured in this study are very
conservative. The results would be even more dramatic if a smaller set of only
the most friendly firms for women had been highlighted.
It is important to note
that the correlation does not prove causality. While it could be concluded that
a firm’s long-term record of promoting women to high positions results in
higher than normal profitability, it could also be argued that firms with higher
profitability may feel freer to experiment with the promotion of women to high
One intriguing additional
explanation is that firms exhibit higher profitability because their top
executives have probably made smarter decisions. One of the smart decisions
that those executives have made is to include women in the executive suite, so
that the best brains are available to continue making smart, and profitable,
decisions for the firm.
However one interprets the
data, it is clear from multiple measures that there is a positive correlation
between the existence of larger numbers of women in the executive suite and
higher than normal profitability within an industry. Wise executives might well
keep this evidence in mind as they consider promoting talented individuals to
the executive suite.
Catalyst . Women in Corporate Management. Catalyst, New York. Various other studies are available from www.catalystwomen.org.
Driscoll, Dawn-Marie and
Carol R. Goldberg . Members of the Club: the coming of age of executive
women. The Free Press, New York.
Fortune . ”The
Fortune 500” vol.139 no. 8. April 26, 1999.