Gender Diversity: time to have the right financial KPIs
Gender diversity has become a hot topic in the corporate world as consumers and partners place greater emphasis on the social impact of companies. There have been some laudable efforts and some remarkable progress, even if women remain far from parity.
I recently spoke on a panel at the SALT Conference with Fitch Ratings in New York City where we explored the theme of investing in women to grow your business. We discussed how not only female employees, but the entire company can thrive by implementing policies such as zero tolerance for bias, enhanced parental leave, and childcare support.
However, as a data-driven person, one of the aspects of these conversations that often frustrates me is the lack of clear metrics that measure the impact and success of such gender diversity policies.
Yes, there are statistics that track the number of women on boards, or in the C-Suite, or in overall workforce. But these are static. While they can be a proxy for tracking diversity efforts, they don’t reveal anything about the specific benefits of those policies.
Gender diversity goals should be pursued not just because they are right socially and morally, but also because they are right economically and financially for companies.
To move this conversation forward and to convince even more companies to embrace this movement, we need to develop a new set of KPIs that measure the financial metrics of gender diversity. Building effective and comparable KPIs and collecting relevant datapoints is one of the priorities at our firm. Such data is the only way these topics will be placed at the center of an investment thesis that will continue to drive progress.
Invest in women to grow your business
Effectively measuring the impact of gender diversity on financial performance might look simple, but it’s not.
Let’s compare it a straightforward economic issue like inflation. Gaging the impact of inflation on a company’s bottom line is easy: Higher costs impact gross margins.
The problem is that gender diversity doesn’t have that same direct line between cause and effect. That makes it harder to define measurable indicators.
Harder, but not impossible. Let’s look at three ways we know gender policies can impact companies:
1. Employee engagement: Gender diversity leads to higher employee engagement, which reduces turnover. This is key in certain industries like tech where there is a big shortfall in skilled workers and lots of vacant jobs. Consider that the US Bureau of Labor Statistics recently reported that in the categories of R&D and sales for the tech industry, there are 11 million job openings compared to just 6 million people qualified people seeking those jobs. If people leave, it create a hole in the company that is increasingly hard to fill.
2. Culture of innovation: McKinsey published a very interesting study in 2019 that drew a clear line between higher gender diversity and a culture of innovation. This leads to better products developed quickly which generates higher sales.
3. Reputational effects: What happens if there is no gender diversity? This can lead to costs related to a poor reputation and backlash which could drive away customers, investors, and prospective employees. Publicity about pay gaps, harassment, or bias can carry big risks. Obviously, those all will impact the bottom line.
All of these categories can be the basis for starting to develop KPIs that make sense for your company and its goals.
Problems with the absence of gender metrics
Again, it’s tempting to see the question of gender diversity purely in the context of social and moral goals. But without more profound analytics, it’s easy for executives and boards to shove these goals aside, particularly at moments of crisis, because their impact on the bottom line seems too abstract.
For instance, per The Female Quotient, new data from August 2022 in the US shows that the share of employers offering paid maternity leave beyond what is required by law dropped to 35% this year, down from 53% in 2020. Similarly, the share of employers giving paid paternity time off fell to 27% in 2022, from 44% in 2020.
Why is this happening? Because amid the current economic uncertainty and market turmoil, these seem like big expenses that weigh against the bottom line. In the short run, there is an increase in personnel costs when someone goes on leave: You must replace the vacant role, and hire temporarily or permanently, depending on the strategy. So, cutting these benefits seems prudent at first glance.
But when you look at this using a multi-timescale approach, this is not the right way to think about these benefits. As I noted above, we know these policies lead to higher engagement and productivity, which in turn improves retention and lowers recruitment and training costs over the long run. These companies will ultimately perform better.
Our firm is encouraging our clients, both investors and companies, to broaden their analysis and strategy to include Gender Diversity KPIs. But there is another indicator of a company’s commitment here: Policies.
It’s important is to have very clear policies and rules that are transparent and consistently implemented. They should move beyond word-of-mouth or casual practices and be encoded directly into company manuals that make the rules, goals, and policies explicit.
During due diligence, we routinely review such workplace manuals. That can provide unexpected insight into the company’s values, culture, and leadership. This also sends an important signal to employees that these policies are the rules of the road. So when a mother or father decides that they are going to take a break to take care of their children, there will be no ambiguity or possible repercussions. Those employees know that this decision will not limit their career in unforeseen ways.
These policies should be stable and consistent so employees can have confidence that a decision they make today will not be held against them in the future.
How to attract and retain more female talent
The situation for women in the workforce has gotten even more strained during Covid as their numbers have fallen during the pandemic. Remote work has helped in some cases, but the reality remains that women are still the primary caregivers and carry the burden of caring for their homes and children even as they juggle work responsibilities.
It’s more urgent than ever that companies help them meet these challenges if they want to attract and retain the best talent.
When we talk about female talent and gender diversity, the tendency naturally is to focus on women. But the best policies take a broader view by thinking holistically about families. That means gender policies should focus on women and men.
This starts with paid parental leave. Of course, these policies should be clear about the duration and modalities of taking time off. But these should include maternity and paternity leave.
To promote gender equality, EU institutions approved in 2020 the establishment of a ten-day minimum paternity leave for the whole of the EU, which represents a step forward for most countries. In France, this was already the case. These policies are concrete steps signaling that men should have a role to play in promoting gender equality.
Many scale-ups we have worked with have pushed to increase this leave and are finding that it’s an important asset when it comes to finding the right candidates. And there is a movement to ensure there is not just support for taking time off but returning as well when the transition back to work and away from family can feel brutal and demoralizing.
Increasingly, companies are also recognizing the need to offer greater mental health support to employees. Given that so many women are stressed and are having difficulty coping with being a great mom and having a fabulous career, easy access to mental health care can be a vital way of supporting them. In France, we’ve seen a startup called Moka.care develop a mental health service and application for enterprises that helps employees connect with a counselor, psychologist, or support groups.
Paid leave and mental health services are two very concrete ways of addressing the crisis women are facing. Just as importantly, they are part of building a culture of empathy that demonstrates a company values the family life of employees. Sending a message that the company wants employees to have a well-balanced life creates favorable benefits for both those workers and the organization.
As we work to refine our investment theses, and those of our clients, we find that the most resilient companies are the ones that are striving to place these ideals at the center of their culture and their business. Tracking them with the right metrics and communicating about them internally and externally is a powerful indicator that the right kind of leadership is in place.