Why the Advancement of Women in Finance Is Strategically (and not Just Politically) Correct

Why the Advancement of Women in Finance Is Strategically (and not Just Politically) Correct

1.            Introduction

Worldwide, women are an underutilized resource in achieving fundamental business goals of economic growth. Women represent only 1.2 percent of CEOs and 15.7 percent of corporate officer positions in the top companies globally.1 Moreover, women are not being groomed for top positions in the future. Only 9.9 percent offline officer positions in the leading companies are held by women.2 This finding represents both lost opportunities for women and lost opportunities for companies. And the opportunity cost of not advancing women is growing. In major industrialized countries, macroeconomic changes such as labor shortages and the shift to services are making women an increasingly critical part of the resource pool. In microeconomic terms, women are becoming critical to companies for creating competitive advantage. No longer is it simply politically correct to employ and advance women. Rather, it has become a business imperative.

II.            Macroeconomic Factors

In the major industrialized countries populations are aging, creating labor shortages. At the same time, greater numbers of women are participating in the labor force. Concomitantly, statistics indicate that women are becoming more educated than men. Due to both trends, women are becoming an increasingly valuable part of the labor pool in industrialized countries.

Changing Demographics

The International Labor Organization reports that as of 2000, the population over 65 in the more developed countries represented 14.4 percent of the population. This percentage is projected to steadily rise to 22.6 percent by 2030, as seen in Figure 1:

FIGURE 1: Population over 65 as a percentage of overall population

Source: ILO: World Labour Report 2000 (Geneva: ILO, 2000), Statistical Annex, Table 2. Taken from p. 20. World Employment Report 2001.

Moreover, the ILO reports that, “the ratio of those over 65 to those in the declining 15-64 age group (the “old-age dependency ratio”) in such countries is set to rise even higher, to 23 percent in 2010, 37 percent in 2030, and 44 percent in 2050.”3 Some may assume that such shortages can be quelled by importing foreign workers: this has often been the response in the past. According to the OECD, foreign-born, non-citizens in the labor force constituted 10.8 percent of the workforce in 1996 for the US and 6.1 percent for France, 9.1 percent for Germany, and 17.5 percent for Switzerland in 1997.4 Yet, the UN Population Division concluded that in order to fill future labor shortages with immigrants, “replacement migration would need to be on a scale unparalleled by past experience.”5 For example, in order to maintain the size of the working population in the European Union, the UN estimated that it would require 75 million immigrants within 50 years.6 Given the strain already precipitated by such immigration, it is unlikely that immigration will increase sufficiently to fill the need.

However, while overall labor shortages are expected, the percentage of women in the labor force is on the rise and expected to continue. In OECD countries, women’s labor force participation rates climbed to 59.5 percent in 1999 from 56.4 percent in 1990.7 Male participation declined slightly and, consequently, males constitute a smaller percentage of the labor force, as the trendline shows below:

FIGURE 2: Male Percentage of the Labor Force in the Big Seven Industrialized Countries

The archetype of the male breadwinner as the sole head of household is extinct in many major industrialized countries. Women are increasingly the head of households, either due to divorce, never being married, or because they make more or equivalent salaries to their husbands. For instance, by 1993, women in the US had become the sole earners in 20 percent of American married families and a dual earner in 55 percent of married families. Moreover, women were the sole earner in 66 precent of the growing category of single-parent families (16 percent of all families). Contrary to some people’s perceptions, the majority of married women — 64%– with young children under six choose to keep their jobs.8 There are similar trends in other industrialized countries. Women’s participation in the workforce is not just a choice that increasingly women are making, but it is also an economic necessity as women become a critical — if not the only — economic support for many families.

Changing Nature of the Economy

While women grow as a portion of the labor force, traditional constraints that held women back in the industrial era are increasingly irrelevant. The Hudson Institute’s influential book Workforce 2020 notes that in the early 20th century, “with few exceptions, the work to be done was more easily performed by men than by women. But that is emphatically no longer the case. Now that the nature of work has changed, almost all jobs today can be done as easily by women as by men.”10 In all major industrialized countries, agriculture and manufacturing, which often rely on physical strength, are declining while the service sector is expanding.

FIGURE 3: The Changing Economic Structure in Major Industrialized Countries

The Knowledge Economy

Women are actually better preparing themselves than men for the knowledge economy. Indeed, the OECD has identified that in 20 out of 26 countries, females are graduating with more tertiary-type A degrees than men, as can be seen below:

FIGURE 4: Proportion of Tertiary Qualifications Awarded to Females (2001)

Women are also getting degrees in fields traditionally dominated by men. In the UK, the number of women “markedly outstripped” the number of men who applied and were accepted into university places in medicine, law, and business.14 Thus, in most major industrialized countries, women have more formal education than their male counterparts and, therefore, represent an even more critical labor resource in the knowledge economy than they did in the industrial era.

Technology Demands Flexibility

Although women are underrepresented in some technical fields, the increasing relevance of technology also improves women’s opportunities in the workforce. Technology enables new work arrangements that may have previously hindered women’s advancement. Even more important may be the way in which technology is changing the nature of business. Technology is disruptive- forcing companies to be more responsive, less hierarchical, more collaborative, and more flexible. In this type of economy, women seem to be especially adept. Business Week reported on five separate studies that identified that women scored better than men in the vast majority of characteristics identified as being essential for effective management. Business Week reports:

“after years of analyzing what make leaders most effective and figuring out who’s got the Right Stuff, management gurus now know how to boost the odds of getting a great executive: Hire a female. That’s the essential finding of a growing number of comprehensive management studies conducted by consultants across the country for companies ranging from high-tech to manufacturing to consumer services. By and large, the studies show that women executives, when rated by their peers, underlings, and bosses, score higher than their male counterparts on a wide variety of measures – from producing high-quality work to goal-setting to mentoring employees. Using elaborate performance evaluations of execs, researchers found that women got higher ratings than men on almost every skill measured. Ironically, the researchers were not looking to ferret out gender differences. They accidentally stumbled on the findings when they were compiling hundreds of routine performance evaluations and then analyzing the results.”15

Some findings of separate studies: Hagberg Consulting found that performance evaluations of 425 high-level female executives outscored male counterparts in 42 of 52 skills measured, Personnel Decisions International found that women had higher ratings than men in 20 out of 23 areas, independent consultant Larry Pfaff found that women outscored men in 17 of 20 measures.16,17, 18 Harvard Business School professor Rosabeth Moss Kanter remarked that, “women get high ratings on exactly those skills needed to succeed in the global Information Age, where teamwork and partnering are so important.”19 Women are avid users of technology and employers have much to gain by better utilizing women’s abilities.

III.            Microeconomic Factors

Just as macroeconomic trends such as labor shortages and the onset of the knowledge economy make women more critical to the labor force in general, women are also valuable to companies in particular. Companies can gain competitive advantage by incorporating women into the decision-making processes at all levels, increasing diversity of thought and providing greater insight into the vast female market.

Diversity Enhances Innovation and Problem-Solving

Research indicates that increasing diversity improves creativity, problem-solving, and flexibility within an organization. A larger proportion of women at all levels of decision-making can improve productivity. In the 1960s, the University of Michigan initiated one of the first studies that identified heterogeneous groups as producing higher-quality solutions than homogeneous groups. The researchers concluded:

“mixing sexes and personalities appears to have freed these groups from the restraints of the solutions given in the problem.” (Hoffinan & Maier, 1961, p. 404) In 1982, Janis performed groundbreaking research in which he concluded that heterogeneous groups were less prone to groupthink — a phenomenon attributed to the poor decision-making of homogeneous groups. In 1983, Nemeth and Wachter found that heterogeneous groups performed at a higher-level of critical analysis of decisions. When a minority view was present, the groups: 1) considered a larger number of alternatives and; 2) examined assumptions and implications more thoroughly. Empirically in business, Rosabeth Moss Kanter identified that the most innovative companies deliberately created heterogeneous groups in order to “create a marketplace of ideas recognizing that a multiplicity of points of view need to be brought to bear on a problem.”21 Therefore, increasing diversity improves problem-solving, innovation, and decision-making amongst all employees in an organization.

Women as the Market Majority

As demographics change, it is imperative to have a workforce that mirrors these demographics. Having women in the workforce enables companies to be more attuned to women’s needs. They will benefit from having women in all levels of decision-making in order to pose the right questions and to make the right on-the-spot decisions. Not all decisions can be researched – many business decisions especially in today’s fast-paced environment require quick decision-making that relies largely on intuition. Numerous studies have shown that women’s priorities, preferences, and buying processes are different from those of men. Therefore, businesses will greatly benefit from having women at high levels of decision-making. This is especially true because women represent the biggest market segment in consumer markets, and an increasingly large segment in business markets.

Consumer Markets

Women overwhelmingly control purchasing of consumer spending. First, women hold more assets than is commonly assumed. In the US, “women comprise 47 percent of individuals with assets over $500,000. Women control 51.3 percent of the private wealth in the United States.”23 In addition, women are more likely than men to control household spending. As management expert Tom Peters writes, “women are not a niche. At 51 percent of the population, women are the majority. Second, in most households women handle the finances – they spend the money. In other words, the real story is that even though they’re “only” 51 percent of the population, women represent more like 80 percent of the purchasing power.”24 Most consumer goods companies know that women are the key decision-makers for household goods: 80 percent is the rule of the thumb used by many consumer goods companies as the percentage of purchasing made by women. Producers of big ticket items ranging from cars to financial services are finally realizing that women are also prime — if not sole — decision-makers and are taking steps to improve their sales by women. The GM Women’s Retail Initiatives aims to place more women as owners and operators.25 Tom Peters explains that his accumulated research identified that women are key decision-makers for the following purchases:

“83 percent of all consumer purchases. Home furnishings … 94%. Vacations … 92%. Houses … 91 % Consumer electronics … 51 %. Cars … make 60% of purchases, significantly influence 90%. Services are the same story: Choice of a new bank account by women … 89% of the time. Health care … 80% of decisions, over two-thirds of all health care spending … Men and women are different. And different in a way that is oh, so relevant to business — from product development to marketing to distribution strategies … “All this” is not about a “specialty marketing group” for women’s stuff, or some sort of “women’s initiative.” “All this” is about a struggle for the very soul of the company, and the essence of the brand itself- for computer and financial service firms at least as much for consumer goods marketers. In short, boldness and wholesale commitment alone will lasso this matchless opportunity.”26

In short, women are the chief purchasing officer of almost all households — those headed by both females or males. This power is positioned to grow even further as more women become the sole heads of households and as women continue to participate so actively in the labor force. A company that sells consumer goods and services requires women at all levels of the organization in order to drive decision-making that will appeal to this all-¬≠powerful segment.

Business Markets

As well as controlling consumer markets, women are increasingly gaining influence in business market purchasing. Martha Barletta, author of Marketing to Women, explains women’s business purchasing power:

“In fact, today, 49 percent of all professional- and managerial-level workers are women. Even more interesting to the businesses that sell materials to major companies is the fact that 51 percent of all purchasing managers and agents are women. Human resources executives, who play a key role in deciding on the financial services providers for their companies, are predominantly women. Office administrative managers, who choose the businesses that will provide their company’s supplies and services, are mostly women. And business communication leaders, who buy the production and media services for their company’s marketing, advertising and PR, are very often women. If knowing your customer is the key to selling to her effectively, lots of business-to-business companies had better start learning how women buy.”27

In addition to playing a large role in big companies, women’s independent business owners are a formidable force in the market.

IV.          Advancing Women

In short, women are an increasingly critical resource in major industrialized countries and CEOs must harness the power of women. Fortunately, the CEO has in his control the power to change his organization so as to advance women. All it takes is commitment.

Women have the skills and the aspirations to work at the highest-most levels of business. A study conducted by Catalyst and the Conference Board Europe identified that more women (34 percent) than men (26 percent) aspired to senior-most leadership, defined as CEO, firm managing partner, executive or management committee member.”28 However, more men (53 percent) than women (35 percent) already considered themselves senior-most leaders.29 As previously detailed, women are assiduously working hard to get the education and skills they need to succeed in today’s economy.

As women have the skills and the aspirations to succeed, the vast majority of the obstacles that stand in the way of advancing women are in the CEOs control. Below are the factors that were identified as the top five barriers to women’s advancement in the US and Europe:

FIGURE 5: Top Barriers to Women’s Advancement

European and US companies can actively work towards addressing the cultural and informal barriers that often impede women’s success. CEOs can make a conscious effort to groom women, just as men are mentored and given growth opportunities.

Moreover, companies that make the effort to make their companies more hospitable to women will also profit from the benefits of making it hospitable to all. The human resource and financial consulting firm Watson Wyatt found that, among other sub-categories, companies:

“that show more flexibility in work arrangements – supporting flextime, working from home, and job sharing — are able to capture the skills and knowledge of a wider range of talent, and it pays off in a 3.5 percent increase in value… Doing a better job of keeping voluntary turnover low rewards 3.2 percent higher turnover value. Companies with a higher commitment to job security earn an additional 1.4 percent. “30

Therefore, those companies that adopt “women-friendly” policies will be rewarded with Wall Street-friendly financial performance.

V.           Conclusion

Macroeconomic factors indicate that the rising importance of women in the labor force in industrialized countries is inevitable. Labor shortages, the increased participation of women in the labor markets, and the high levels of education for women make women an even more critical labor resource than in the industrial era.

Moreover, ensuring that women are at all levels of decision-making improves a company’s ability to innovate and to cater to the majority market that women represent. In the past, women were expected to fit into a company’s existing structure: those that could not fit, simply left.

In today’s and tomorrow’s economy, those companies that adapt their structure to fit women will benefit from better employees, more innovation, and greater responsiveness to the market. Such companies will not just survive, but they will thrive.



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Watson Wyatt Worldwide. Watson Wyatt’s Human Capital Index: Human Capital as a Lead Indicator of Shareholder Value. 2001/2002 Survey Report. Copyright 2001.

Wirth, Linda. Breaking through the Glass Ceiling: Women in Management. International Labour Office. Geneva, Switzerland. 2001.