FTSE 350 companies are not fulfilling their financial potential because of their failure to appoint more women to key executive roles.
In-depth research by diversity consultancy The Pipeline suggested a clear link between a lack of gender diversity in senior roles and net profit margins. Its authors, Lorna Fitzsimons and Margaret McDonagh, argued that Women Count 2020 provided compelling evidence as to why it was in companies’, government’s and society’s financial interest to improve gender diversity at executive committee level.
The analysis stated that the past year had not been a good one for those FTSE 350 companies still without a single woman on their executive committee. In 2019, the net profit margins achieved by these businesses stood at 6.1%, but in 2020 this has collapsed to just 1.5%.
The failure to look beyond outdated employment and promotion practices is resulting directly in poorer business performance” – Lorna Fitzsimons, Margaret McDonagh, The Pipeline
Figures scrutinised by researchers revealed that FTSE 350 companies which had executive committees with female membership of more than 33% had a net profit margin over 10 times greater than those companies with no women at this level.
Companies with no women on their executive committees had a net profit margin of 1.5%, whereas those with executive committees where comprised of more than 33% women achieved a 15.2% net profit margin. The authors argue that if the companies with no women on their executive committees this year had the same net profit margin as companies with more than 33% female membership on their executive committees they would collectively gained an extra £47bn in pre-tax profit.
The report stated that despite executive roles containing a profit and loss (P&L) responsibility being considered to be key for future CEOs, 90% of P&L roles on executive committees of FTSE 350 firms were held by men and only 10% by women. More than two-thirds (68%) of FTSE 350 companies did not have a single female executive committee member in a P&L role. This “staggering” fact, said the authors, raised “serious questions about the desire for positive change in so many businesses and the prospects for women seeking to make it to CEO”.
Companies with women in senior leadership roles are more profitable. They are better innovators. They are more respected in their fields” – Theresa May, former Prime Minister
Analysis of data found the gap between the net profit margin for companies without any women on their executive committees and those which did embrace a level of gender diversity in senior positions was the biggest The Pipeline had recorded in the five years of producing the research.
However, there had been a small (2.7%) increase of female membership on executive committees in the FTSE 350, which the study welcomed. Women now made up nearly a fifth (19.8%) of total executive committee roles. Most of this increase came from the FTSE 250 – the increase of female membership on FTSE 100 executive committees had slowed to 1.4%.
The rise of women in functional roles was welcomed by the authors with women in, for example, HR roles, beginning to break through in larger numbers to top jobs. The study added: “We also observe that those companies which are already good at promoting women are doing even better.”
Despite this, similar numbers of companies as last year remained all-male bastions, with 15% of FTSE 350 businesses “refusing” to have a single woman on their executive committee.
The authors concluded: “The failure to look beyond outdated employment and promotion practices is resulting directly in poorer business performance. This is another generation of female talent lost. At the current rate of growth, we will miss another generation of female talent before we have any hope of parity.
“The case for change here is unarguable, yet it seems many companies are ignorant, wilfully, or otherwise, of the opportunities on offer for improved company performance.”
Vanda Murray, chair of the board at FTSE 250 construction firm Marshalls, said profits were better where there was more diversity in terms of gender and ethnicity because leadership groups at such firms challenged more. She told the BBC: “They have more discussion and debate and that leads to better decision-making.”
In her foreword to the report, former Prime Minister Theresa May wrote: “Companies with women in senior leadership roles are more profitable. They are better innovators. They are more respected in their fields.Yet, as this report lays out, across the 350 biggest British PLCs, fewer than two in ten chief financial officers are women, only 4% of investment managers are women, and just 5% of firms are led by a female CEO. In the FTSE 100, there are more CEOs called Peter than there are women in the top job. Depressingly, that is one fewer female CEO than last year.”