Post women’s day: Global financial cost of gender bias

“Having women on the board makes good business sense. It’s a performance issue with bottom-line impact. It’s true across sectors, and it’s true for power and utilities. There is a well-documented body of evidence that shows the links between the presence of more women on the board and increased profitability, returns on investment and innovation.”

This is one of the extracts from the EY’s Women in Power and Utilities Index 2016. Of course, the campaign for women empowerment has taken an upswing in recent years, led by international figures and institutions. But more prominent now is the use of the empowered women, which is ranked low and assessed as creating huge financial losses for corporates, as well as the global economy.

In the study, 64 per cent of high- performing companies reported that men and women have equal influence on strategy in their organizations, compared with only 43% of the lower-performing companies.

The global capital market index provider- MSCI, in its research, revealed that there was a 36 per cent better Returns on Equity (ROE)- the ratio of net proft to shareholders’ equity, for boards with more women (based on the 1,643 companies that make up the MSCI World benchmark). It also concluded that companies lacking board diversity tend to suffer more governance-related controversies than average.

For the 2016 report, the study once again compared the ROE for the top 20 most gender-diverse utilities with the bottom 20. The choice of ROE as a measure of performance, no doubt, is because it reflects actual performance, management efficiency, sales growth and changes in capital costs.

ROE is a particularly important measure for utilities as several utilities are subject to regulated maximum returns, and efficient operations can result in better ROE. However, the top 20 most gender-diverse utilities significantly outperformed the bottom 20 in terms of ROE, with a 1.07 per cent. Given that utilities are asset-heavy, this difference in ROE is significant as it could result in millions less in profit.

Globally, the number of women in power and utilities board positions rose just one per cent in last three years. Specifically, there are only 25 women board executives in the top 200 utilities. Women occupy just 16 per cent of board member positions in the sector, but the most gender-diverse utilities outperform least gender-diverse on return on equity.

“Gender parity progress is slow in the global power and utilities sector, with the number of women in board positions rising just one per cent in the last three years. The 25 women in board executive positions globally represented five per cent.

“Research also shows women occupy just 19 of non-executive board positions and 14 per cent of Senior Management Team (SMT) roles. The proportion of women in SMT roles was the only statistic to increase each year from 12 per cent in 2014 and 13 per cent in 2015,” EY in a statement said.

With 345 women out of a total of 2,149 positions (16 per cent) currently in board roles, it will take 515 more women appointed to reach just 40 per cent representation. And to grow from the existing five per cent women in board executive roles to 10 per cent requires another 24 women to be appointed.

Regionally, the Americas have the highest percentage of female board executives (led by Latin America with nine percent), followed closely by Europe (seven per cent), with Africa and Middle East at six per cent. These regions also top the list for the percentage of women in non-executive board roles. Asia-Pacific had the lowest percentage of women board executives at just three per cent.

EY Africa Energy Lead, Claire Lawrie, said: “Women in leadership is a business issue. It is not just a female issue, given that diversity is linked to company performance. More companies should start measuring and reporting on gender diversity in leadership. At the current rate of progress, the advancement of women will not happen anytime soon. Power and utilities companies must address the things that are frustrating the achievement of better diversity in boardrooms – especially as our research shows that the most gender-diverse companies outperformed the least gender-diverse companies by 14.8 per cent on return on equity.

“In these times of disruptive change, as the sector undergoes fundamental transformation, diverse leadership teams make good business sense. While diversity comes in many forms beyond gender, getting women into leadership is an obvious starting point.”

The EY Power and Utilities Sector Leader, Norman B. Ndaba, said: “Ensuring that women are present at the boardroom table is an important starting point for utilities. Board executives are where the greatest influence and decision-making power on a board reside. They are the people running the assets.

“For women to make real inroads into the business, they must be represented among board executives.  It is unfortunate that, with the pace currently adopted, it will take 72 years to reach 40 per cent women on boards in the sector. That’s too long. While diversity comes in many forms- age, ethnicity, sexual orientation and nationality, ensuring that women are present at the boardroom table is an important starting point for utilities. The research highlights that it is time to take action and to put gender on the agenda.

The evidence is clear that greater gender diversity on the board delivers business benefits needed more now than ever, as the global economy faces disruptive and transformative changes.

The good news is that there are things that all leaders today. Sponsor future female leaders and encourage other senior leaders- male and female, to do the same. If you’re not aware of promising women in the pipeline, seek them out. Help to open doors to new opportunities and encourage women to stretch themselves.

While the Index measures women in leadership, it’s just as important to examine what is happening below board level. We must build a real culture of support at all levels, especially in recruitment and performance management in those early years, and it will pay off throughout the organization.