Women at the Top of Corporations

Date July 4, 2012
Speaker Georges DESVAUX(Managing Partner, McKinsey & Company Inc., Japan)
Commentator YAMAGUCHI Kazuo(Visiting Fellow, RIETI/Hanna Holborn Gray, Professor of Sociology, the University of Chicago)
Moderator SAKAMOTO Riwa(Economic and Social Policy Office, Economic and Industrial Policy Bureau, METI)
Materials

Summary

Georges DESVAUX's PhotoGeorges DESVAUX

McKinsey & Company has undertaken research on the role of women in corporations in order to find and promote the best talent in the world, and to help women become successful in their careers. During this process, clients have been consistently questioning whether or not the accession of women to leadership roles is important, and, if so, the necessary changes made in order to influence the business world positively.

McKinsey & Company has been conducting research on this theme since 2007, and findings on a comparison of the roles of women in corporations between Europe and Asia were published last week. The focus of this presentation will be on this topic and will include background on the differences in the situation between Asia and that of Europe and the United States, what has been learned from research conducted in Europe, and observations on the current status of Japan. With regard to Japan, conditions are present for a positive change to be made, however, this would depend on the standpoint of the government, public debate, and companies.

In Asia, there are fewer women represented in corporate leadership than in the western world. The percentage of women in executive committees varies greatly across the world. In Europe, the highest is in Sweden at 21%, with the lowest in Germany at 3%. In Asia, Singapore has the highest percentage at 15% and Japan with the lowest at only 1%. It can clearly be seen that there is a problem with imbalance in Japan, although it has been proven in the past that those numbers can change dramatically over a short period of time. In France, the percentage of women on corporate boards was around 10% three years ago but is now at 20%. Therefore, there is potential for the same positive changes in Asia.

There are several reasons for the lower representation of women in corporate leadership positions in Asia compared to Europe. One reason is that women labor participation rates across Asia are lower than in the United States and Europe. In Norway, this rate is 76%, compared to only 35% in India. Japan has a rate of 62%, which is average, although still below that of Europe. In both Asia and Europe, there are common barriers which tend to prevent women from reaching positions of power within corporations. The "double burden" syndrome, whereby women have to balance both work and domestic responsibilities, is cited as the most important barrier in both continents. Other factors such as an absence of female role models and the inability to work "anytime, anywhere" due to family responsibilities are also commonly cited in both Asia and Europe. However, one difference is that the lack of pro-family public policies or support services acts as a large barrier in Asia, but is less influential in Europe. This, in turn, creates the "M-curve" in women labor participation rates in Asia. In the United States, once women begin to engage actively in the labor market, they tend to stay so until retirement. However, in Asia, labor participation among women tends to dip when they reach their 30s as they leave work to raise children. Therefore, public policies in relation to family support services act as another major factor affecting the potential for women to reach high-level positions in corporations, particularly in Asia.

At present, many chief executive officers (CEOs) in Asia appear interested in knowing why such research is relevant, as well as the type of benefits that could be brought about by having women with more participation and positions of power in the labor market. The reason is that research has proven this would be a positive reflection in the performance of organizations. McKinsey & Company first researched organizational performance using a statistically-proven system, which included interviewing 500,000 employees from over 1,000 companies representing all sectors in three regions of the world. It was found that there are nine dimensions of organizational performance and that a high score in each dimension has a strong correlation with business performance and results. Following this, research was conducted on whether or not there is a difference in organizational performance in companies with women executives and board members versus those without. It was found that companies with three or more women executives and board members showed better organizational performance than those without. Those positive effects were reflected more in certain categories than in others. Direction, coordination and control, leadership of teams, and work environment and values were the four categories in which the most significant benefit of having three or more women executives and board members were observed. Research was also conducted on whether or not companies with a higher proportion of women in their executive committees have better financial performance. Such companies, on average, enjoy a 40% to 50% higher return on equity (ROE) and a higher profit margin. Based on these results, it is very clear that companies with greater gender diversity tend to have better performance. Correlation is not causality, and while it would appear that the influence of women in such companies promotes positive results, it is more likely that they enjoy those positive results simply because they are able to choose from a wider range of talent.

Further research has statistically proven a general difference in leadership behavior between males and females. Women show a tendency to provide more frequently inspiration and efficient communication on a directional level. With regard to work environment and values, women tend to engage in participative decision making more often, while men apply more individualistic decision making and employ more control and corrective action. As a result, leadership behavior typically exhibited by women improves organizational performance along multiple dimensions such as direction, team leadership, work environment, and motivation. Therefore, having different leadership behavior within the same company allows for a broader range of working patterns and greater flexibility in tackling various issues. This, in turn, has a positive effect on organizational performance.

In Europe, survey figures in relation to gender diversity as an issue of importance on the CEOs' agenda have shown a dramatic change over the last few years. Between 2010 and 2011, the number of companies with gender diversity as a top 10 item on its strategic agenda has doubled. This figure now sits at around 50%. Public debate and the notion of discussing the reason for the importance of gender diversity have played a significant role in bringing about such a sudden change. This, in turn, has prompted the adoption of measures in European countries to deal with gender-related issues. There are three distinct categories of gender diversity measures, and 40% of European companies have half of the measures in place in all three categories. The management commitment category includes visible actions by the CEO and his/her senior management team in closing the gender diversity gap, having targets for women's representation in top positions and the consistency of company culture with gender diversity objectives. The women's development programs category includes the creation of networking programs dedicated to women and leadership skills-building programs. Finally, the collective enablers category refers to the provision of services and facilities to help reconcile work and family life, options for flexible working conditions, and programs to smooth transitions before, during, and after parental leave. It has also been found that each of these measures has a different level of success. CEO commitment and programs aimed at developing women as leaders tend to achieve more success than collective enablers. Research was also conducted on the relationship between the percentage of gender-related measures judged to be well implemented and the level of impact it has on the progress of diversity actions. It was found that companies with well implemented measures are over 20% more likely to make progress with diversity than those with limited diversity measures.

Differences in issues facing each gender are apparent and should be approached accordingly. One example of this is the issue of motivation. It is necessary to raise the motivation level of women in relation to their careers. Furthermore, women also have less of a tendency to create networks and therefore are less likely to adopt mentoring naturally. What has been learned through research is that men and women can generally be associated with different issues in the workplace, therefore different programs must be implemented in order to deal with this effectively.

In terms of gender diversity, Japan is still significantly behind other Organisation for Economic Co-operation and Development (OECD) countries in both the participation rate and earnings gap. However, there seems to be hope for the future. Japan is rapidly catching up with countries in Europe. For example, whereas the proportion of female university graduates between 1975 and 2008 in Sweden remained almost unchanged, in Japan, the same figure doubled over this period of time. This means that there are now more women with the potential to participate in the labor market. Japan has also seen a significantly large drop in the earnings gap between men and women over the last 30 years, whereas it has remained relatively unchanged in Germany, Sweden, and France. Although the overall numbers are small, there has recently been an increase in the number of women in managerial positions in Japan. The ratio of women operating as section chiefs, managers, and general managers rose between 1990 and 2010. Furthermore, in Japan, corporations with higher ROE tend to have more women in managerial positions.

Yet, women continue to struggle to reach the corporate executive ranks in Japan. The ratio of women among board members in 2009 was still as low as 1.23%. It seems that the reason for such a low percentage of women entering executive positions in Japan is different from the rest of the world. Research was conducted in Asia and Europe on the percentage of women in different positions of seniority starting from university graduates and continuing through to entry-level professionals, mid-to-senior management, executive committee, CEOs, and board members. This research revealed that, all across Asia, there is a large drop in the percentage of women who progress from entry-level positions to mid-to-senior management. However, this is particularly dramatic in Japan—around 45% of women are engaged in entry-level positions, dropping to only 11% for mid-to-senior management roles. The reason for such a bottleneck effect is the heavy weight of family commitments on a woman's decision to leave her job. In one survey conducted in Asia, China, Japan, South Korea, and Australia, respondents were asked to what extent does the notion that women must take care of the family influence mid-to-senior-level women to leave their jobs voluntarily. In Japan, 34% of respondents stated that this notion influences many or most women to leave their jobs. In comparison, only 14% of respondents in Australia gave the same answer. Therefore, public perception and government policies play a strong role in influencing the career path and progression of women in Japan.

Another point of interest is that gender diversity is not yet seen as a strategic priority in Japan. In Europe, 53% of respondents at the senior management level stated that gender diversity is a top 10 priority. In comparison, in Japan, this figure is only 25%. Also, when asked whether it is expected that gender diversity measure implication will be accelerated in the future, 66% of respondents in South Korean companies replied positively, compared to only 32% of Japanese respondents. To promote gender diversity in Japan, public debate should be encouraged.

In conclusion, research has shown the importance of promoting gender diversity in upper-level corporate positions for the sake of improving business performance and results through implementing a wider range of management styles and broadening perspectives. Second, there should be a focus not only on collective enablers, but also on management commitment to gender diversity objectives and developing women as leaders. Finally, in Japan and most of Asia, there is a responsibility of the governments to promote pro-family initiatives in order to assist in the development of gender diversity in the workplace.

YAMAGUCHI Kazuo's PhotoYAMAGUCHI Kazuo

There have been some important findings from previous McKinsey reports on women in corporations. Increases in the number of female graduates have a relatively small impact on diversity in leadership, but the promotion system in firms is more important. Firms with gender diversity in the executive bodies perform better than those without. Also, work environment and career plans matter more than family considerations in order for women to experience career success. It was also noted that women surpass men in the three very important areas of organizational performance—providing inspiration, participative decision making, and expectation and rewards. Finally, it was mentioned that certain measures, such as CEO commitment and women's individualized development programs, are more effective than others in promoting women's leadership.

There are several implications for Japan resulting from the findings of McKinsey. In terms of barriers for women, the rate of promotion of women in business leadership varies greatly even within Asia. This variation may not be just in quantity, but also in institution. Japan has not only the lowest female executive ratio at less than 1%, but also the lowest female ratio in administrative and managerial positions. Interestingly, although the most significant Asian barrier for women not found in Europe is the lack of pro-family support policies, this does not apply to Japan. Japan has its own unique barriers such as the tracking system, which is responsible for more than 50% of the gender wage gap, yet is not legally prohibited as a form of discrimination against women. Another barrier unique to Japan is that of the over-representation of women among non-permanent employees with a very low chance of career progression, which accounts for approximately 30% of the gender wage gap. Those discriminatory policies must be removed in order for Japan to make progress in reducing barriers for women in business.

A second implication for Japan is that of women's leadership behavior. There is different logic behind favoring men or women as leaders in business. Traditional gendered logic is the belief that men are superior to women in terms of management skills. Reverse gendered logic is the opposite belief that women are superior to men in leadership positions. Diversity-oriented gendered logic, as reported by McKinsey, suggests that men and women tend to have complementary skills and therefore both are required for optimal business performance. Attribute-based logic in relation to the expansion of the global and ethnic commodity markets promotes diversity through the concept that people of different nationalities are able to provide a range of perspectives and outlooks, therefore helping to make the best decisions for business solutions. Gender-neutral opportunity-cost based logic implies that women and men are equal in all talents, and therefore there is cost involved in hiring less talented men in place of more talented women. Finally, gender-neutral diversity-oriented logic suggests that, regardless of gender, the most talented individuals should be matched with the most suitable jobs. Depending on the stage of women's representation in economic activity, rationality may favor different logic. It is important for Japanese to consider the most appropriate rationale to adopt in order to promote diversity.

In order to encourage gender diversity in Japan, it is crucial that the current management convince others of the importance of having more leading roles filled by women. It is also important to provide role models and skill-building programs specifically for women, develop non-mechanical diversity management, and create support systems to neutralize the impact of childcare. Finally, transparency of performance evaluation and individualized career development are also important in aiding gender diversity in corporations. Japan is still in the early stages of this process, and it is important to show evidence of the value of gender diversity in corporations in Japan in order to move forward.

Questions and Answers

Q1: There was talk of family friendly environments which help women to deal with their family-related duties, although there are very few single mothers in Japan. Therefore, by definition, all of those children have a father as well. Isn`t the issue in Japan due to a lack of balance within the family, where fathers don`t provide enough support to mothers in raising their children?

Georges DESVAUX
Everywhere in the world, it may appear that there is a double burden for mothers who both hold down careers and do the majority of household chores. However, this doesn't appear to be a major driver in gender bias in the workplace. In Scandinavian countries, household chores are fairly well balanced relative to the likes of France, yet this is not reflected in proportion in the actual number of women in managerial positions in corporations. The double burden is clearly an issue, but it seems unlikely to be the only significant barrier in gender-related issues in corporations.

Q2-1: Currently, McKinsey Japan appears to have only one female partner. Is this a result of fair competition?

Georges DESVAUX
There is no reason why we wouldn't have more female partners in Japan. We have had several female partners over the years, and it has been proven that they operated successfully. It is a question of the internal workings of the company. In the Paris office 10 years ago, there was only one female partner and now there are 10. The reason for this is because we mentored female staff and created the possibility for them to have a family life and career. We are working on repeating this success in Japan.

Q2-2: Is it possible for McKinsey male workers to take family responsibilities? This may seem trivial, but in some cases, the mother in the family has a high salary and the father must sacrifice overtime for family commitments. Changing the working style of elite-level men seems to be very important. What are your feelings on this issue?

Georges DESVAUX
I agree with this statement. When the number of women in executive positions in a corporation exceeds two or three, it tends to become acceptable for males to mention that they have family responsibilities to attend. This is a positive effect of balance of gender in the workplace. It is a very valid point that work-life balance must be improved both for males and females.

Q3: What are the reasons for China having a better gender balance in corporate leadership than Japan? It was also mentioned that Europe has a far better gender balance than Japan, although Europe is notorious for the youth unemployment rate. Is there some form of causality involved?

Georges DESVAUX
It seems that, in China, equality was developed through examination and promotion systems introduced after 1949. Second, over the last 25 years, the single child policy has possibly resulted in parents putting greater effort into the success of their single child if it happens to be a girl. This perhaps has led to less gender bias over time. With regard to youth unemployment in Europe, the difference between male and female rates is not particularly significant. However, women tend to have a much larger share of part-time work, and this seems to be creating a barrier in terms of them progressing to higher-level roles.

Q4: If Japan is still at the legitimacy stage, top management commitment to gender diversity should be the top priority. A few top companies in Japan have advanced gender diversity policies very discreetly. In order to make large-scale progress in Japan, there must be pressure from stakeholders. What procedures would be sufficient to push positive progress in Japan?

Georges DESVAUX
The main concern is whether there are enough people who believe that something needs to be changed. In Japan, public debate seems to be most important for pushing progress. The media, government, and political institutions all have a role to play in developing public debate. In Europe, public debate has been extremely important in creating the opening for senior managers to introduce new gender-related policies.

Q5: I am pessimistic about the opinion that public debate matters in Japan. It seems that pressure from market forces would be more beneficial by creating more competition between Japanese and foreign corporations. In the case of market competition, the Japanese would be forced to consider hiring more women in managing roles at a lower cost. What are your thoughts on this?

Georges DESVAUX
The companies with the best talent selection system generally become more diverse and perform to a high standard, therefore creating more competition would possibly result in searching for the best talent and more diversity.

Q6: It appears that public debate has brought about some benefits in gender equality in France. Could you provide some insight into this?

Georges DESVAUX
In France, there is a very significant pro-family public policy. Elementary school also starts from the early age of three in some cases. This provides mothers with significantly more time to commit to their careers. Also, as little as 10 years ago, there were very few women in senior level positions in companies. This has changed due to successful female role models being positively promoted and gaining exposure by the government. Public debate over the last five years has also played a significant role in improving gender equality. Debate in parliament about creating a quota for the number of women in high-level positions in companies has spread to discussion in boardrooms and proactive decisions being made.

*This summary was compiled by RIETI Editorial staff.