How to Increase Gender Diversity Company Wide Based on Current Data (Hint: Not Only on the Board)
By Constance Gamache (Research Lead) and Madison Hofert (Undergraduate Researcher)
The impetus of the cultural wave of diversity and inclusion, #MeToo, cases like Ellen Pao’s (***link to our write-up), and this informed website have spurred many initiatives that strive to increase gender diversity on companies’ boards. In September 2018, California passed a law requiring all companies headquartered in the state to have at least one woman on their board by the end of 2019 with additional requirements for the end of 2020. The 2020 Women on Boards campaign seeks to have women comprise 20% of US company boards by the year 2020. These are only a few of the initiatives spearheading the effort for greater female board leadership. And the popularity of this effort makes logical sense — adequate representation of women at the highest level of a company should increase gender diversity in the ranks below. However, is a definitive focus on women at the board level enough?
Brown University student Sabrina Chen (‘21) tackled questions like this while interning at Just Invest, a startup that creates custom Environmental, Social, and Governance (ESG) portfolios that track indexes. Sabrina analyzed data from 100 companies to test for a correlation between board diversity and the broader diversity of employees within a company.
Her results aren’t the simple Cinderella story you would expect. Sabrina found that there was no correlation between:
- The number of women on boards and the percentage of women in the firm as a whole
- Board diversity and the number of women being promoted within companies,
- The number of women who serve as senior managers and the percentage of women who make up the top ten percent of earners within the company.
Thus, even though the idea of increased board gender diversity suggests a ripple-effect within a company, and even though board diversity data is readily accessible (from sources such as MSCI, Sustainalytics, and Bloomberg), board diversity is not representative of diversity within entire firms. “A better measure of how firms are doing in terms of gender diversity would be to look at gender diversity within any level of a firm (this could range from entry level to senior management). In fact, there is a positive correlation between the percentage of women in the executive level of a firm (or any other level) and the percentage of women in the firm altogether,” Sabrina says. Thus, the gender makeup of boards is neither comprehensive, nor reflective of gender diversity in companies as a whole, and we should move towards a more nuanced definition of gender diversity to truly enact change.
- Increased gender diversity on boards is better than nothing: From the LA Times, “If the law survives a legal challenge, 684 women will be needed to fill board seats for Russell 3000 companies by 2021”
- Subpopulations of gender create nuance through intersectionality: Women of different backgrounds (race, LGBTQ, and disability status, among many more) can face compounded adversity due to structural oppression — this should be taken into account when analyzing data and making hiring decisions
*Denotes Key Source