More egalitarian companies perform better than their competitors, says world’s largest fund

Workforce diversity pays off. A study by BlackRock, the world’s largest fund manager, says that companies with gender equality in the composition of their workforces perform better. “A first look at the relationship between women’s representation and company performance suggests that it is diversity that counts, rather than the prevalence of women or men,” says the analysis, which was released on Thursday. Between 2013 and 2022, these more balanced companies outperformed their less diverse peers by as much as 1.6 percentage points in return on assets (RoA, the ratio of profit earned to a company’s assets) annually.

The Improving Financial Performance by Investing in Women study gathers information from 1,250 large companies, making it one of the largest reports ever to study this phenomenon to date. Its main conclusion is that “the more balanced the company’s workforce, the higher the return on assets.” The report also emphasizes that “having a diversified workforce across all ranks is relevant for financial performance.”

The researchers explain that companies with a lower participation of women (16% on average) and those with a higher share (60% on average) achieve worse results than balanced ones. The best performances are found in equilibrium. It is worth noting that, according to the results of this analysis, profitability is slightly higher in female-dominated companies than in male-dominated ones. Diverse companies’ earnings are higher in Europe (2.1%) and North America (1.5%) than in Asian markets (0.2% in Japan).

“Women’s representation,” the study continues, “is closest to parity in entry level jobs. But this balance deteriorates with seniority.” According to this study, in 2021 only 18% of executive positions were held by women and in 2022 only 6% of CEO positions were occupied by women. Women are underrepresented in top positions in all sectors.

“Women also tend to be strongly represented among lower level and less specialized roles, for example in administrative work,” BlackRock notes. The study indicates that companies with more women’s participation in middle management “perform better” than those with the most unbalanced representation. That also poses a problem for such companies’ future earnings: “We have also identified a negative relationship between this measure of misalignment in women’s representation across ranks and future RoA, even when controlling for past RoA.”

On the other hand, promoting more women helps improve company turnover: “We estimate that improving women’s underrepresentation at higher ranks by 5 [percentage points] is associated with a 3.6% decrease in turnover rates the following year, and 4.6% two years later.” This analysis indicates that over the past decade, companies with female CEOs have almost consistently outperformed the metrics of male-led companies (by an average of one percentage point).

According to the BlackRock study, women are highly represented in sectors like healthcare (52%) and finance (49%), while they are far less present in technology, industrial and construction activities. By country, the study highlights that “the vast majority of countries have achieved at least 40% female labor force participation. However, there are significant disparities across regions and countries.” North Africa, the Middle East and India stand out as areas where women’s participation in the labor market is low.

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