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    Could Your Business Be More Profitable with Women at the Helm?

    By Adrienne Burke | Yahoo Small Business

    Companies that have women in decision-making positions and on their boards have been shown to have better financial performance, according to Christine Lagarde, the first female chief of the International Monetary Fund. In an interview with NPR's Renee Montagne this morning Lagarde, who is known to have said that the financial downturn might have turned out differently if Lehman Brothers had been Lehman Sisters, said:

    “I do believe that women have different ways of taking risks, of ruminating a bit more before they jump to conclusions. And I think that as a result, particularly on the trading floor, in the financial markets in general, the approach would be different. I'm not suggesting that all key functions and roles should be held by women. But if you look at the studies, and there were quite a few that were done by … various financial observers of the markets, it's apparently very clear now that those companies that have several female directors on their boards and females in their top management actually do better, are more profitable, and give a better return to their shareholders.”

    One of the studies to which Lagarde refers is old news. A 2004 study compared the performance of companies with the highest number of women on their boards to those with the lowest on measures including return on equity, return on sales, and return on invested capital over a four-year period. The report, issued by Catalyst, found higher financial performance in all three areas at companies that had more women board members. At companies with the highest percentage of women board directors, return on equity was at least 53 percent higher; return on sales was at least 42 percent higher; and return on invested capital was at least 66 percent higher.

    Under Lagarde, the IMF also recently conducted a major study on women, work, and the economy. “If females were working in the same proportion men do, the GDP would be up … 5 percent in the United States of America,” Lagarde told NPR. “It’s not a moral issue ... it just makes economic sense. It’s a no-brainer.”

    Acknowledging that it is “not uncontroversial,” the IMF report argues “there is evidence of a positive impact of women’s presence on boards and in senior management on companies’ performance.” The authors point to:

    • A 2008 study by two (male) business school professors that found that, in companies where strategy is focused on innovation, “female representation in top management improves firm performance.”
    • A 2008 McKinsey study that found companies with three or more women on the senior management team scored higher on nine organizational dimensions (including leadership, work environment and values, coordination and control) that are positively associated with higher operating margins.
    • And a 2008 study by two University of Cambridge researchers that associated high testosterone levels with increased risk taking—at one level leading to increased profits, but at an increased level impeding the ability to make rational choices.

    Lagarde, who has two sons and answers to an all-male 24-member board at the IMF, was careful to note that she is not suggesting that men are incompetent, or that women are more competent. Instead, she says, “diversity is a richness” that organizations with all-male leadership are not benefiting from.

    Yahoo Small Business Services