Gender diversity can make businesses more productive: Only if it is normatively accepted

#EmpowerHer has seen many features which remind us of the business benefits of gender diversity. An academic research, “An institutional approach to gender diversity and firm performance,” has found the one pre-requisite which needs to be met - without which having equal gender representation will not result in an increase in the organization’s market value. That pre-requisite is normative acceptance. 

What is normative acceptance?

Normative acceptance of gender diversity implies that organizations which believe in the intrinsic value of diversity will yield much more business benefits than the organizations which do not. “For diversity to work, workers have to buy into the value of diversity, not just hear some rules about it,” says Letian Zhang, a professor at Harvard Business School and the author of the research paper. 

To explain with an example, consider a company which increases its women representation at different career levels. The difference in the organization’s market value is calculated, which comes to be higher. If the same company would increase the gender representation but wouldn’t value diversity, then the impact to market value won’t be as much as in the former situation. The research observed this when they compared Western Europe with the Middle East. In Western Europe, the research found that a 10 percent increase in Blau’s gender diversity index, increased the market value by almost 7 percent. When this was compared with the Middle East, which has historically not accepted gender diversity normatively, it was found that changes to gender representation in firms had no bearing on the business performance and market value of organizations. This makes this academic research significant for organizations that are eager to derive the business benefits of gender diversity, but aren’t able to do so at the desired levels. 

"For diversity to work, workers have to buy into the value of diversity, not just hear some rules about it.” - Professor Letian Zhang, Author, An institutional approach to gender diversity and firm performance

Why do opinions on diversity matter to the value it brings?

Professor Zhang, co-authored a feature with two other researchers where they discussed the reasons behind the importance of normative acceptance of gender diversity to unlock its true benefits. According to the researchers, the following three reasons are why opinions on diversity matter to the value it brings:

“A diverse workforce signals an attractive work environment for talent”

In pro-diversity regions, candidates also factor gender diversity as a metric when making their joining decision. According to an analysis by Glassdoor, 67 percent “employees look at overall workforce diversity when evaluating an offer.” Another study recorded that 61 percent female candidates look at gender representation in the leadership team when reviewing her next employer. The researchers tracked the performance of the organizations tested after the hiring of women employees was done. The performance had improved. 

To realize the benefits of gender diversity, do not see it as an obligation

“When you value diversity, you encourage diverse idea exchange”

Another reason why firms which do not normatively accept gender diversity do not show better business performance is because women employees do not feel psychologically safe to share their ideas in the organization. Multiple research bodies have proven that diversity brings diverse ideas to the table, and it is these diverse ideas which lead to innovation. But if an organization does not normatively accept gender diversity, that would mean its employees do not feel comfortable in expressing their opinions. Hence it becomes important for organizations to be culturally inclusive and relieve employees of the hesitation and apprehension of bringing their true selves to the workplace.

The effect of gender diversity is context-dependent

“A diverse workforce signals competent management for investors”

When organizations are gender representative and are known to follow the best practices with gender diversity, research has found that these organizations are valued highly by investors - it is a signal to investors that the organization is well-run. Also, historically organizations see a spike in their stock prices if they win industry recognition for being gender diverse. An organization which promotes gender equality and has equitable gender representation are likely to follow the best practices, even win industry recognition, and thus are likely to appear more competent to investors. This also highlights why normative acceptance of gender diversity is important to the market value it brings.

In pro-diversity regions, gender diversity is a metric for candidates before accepting joining offers

This women’s day, in a bid to empower the women workforce in your organization, act on taking steps to create a widespread belief that gender diversity is critical to your organization. That has to be the first step before you focus your efforts to bring equality in representation - because without normative acceptance, that representation won’t do justice to either the women employees or the business.