The claims

“The evidence is that there is a positive link between women in leadership and business performance.”
David Cameron, 9 February 2010

“If women entrepreneurship reached the same level as the US, there would be an extra 600,000 extra women-owned businesses, contributing an extra £42 billion to the economy.”
UK government presentation, 9 February 2012

The background

David Cameron put women at the heart of the economic recovery when he flew to Stockholm this week for a summit of Baltic and Nordic leaders.

The Prime Minister said Britain’s male-dominated boardrooms are not just holding back female business leaders but stifling growth.

Mr Cameron even refused to rule out imposing a compulsory quota of female board members – something Norway did in 2008 – although he said he “did not favour” such a move.

It’s clear that there is a lack of women at the top of the corporate world. Just 15 per cent of FTSE 100 directors are women as things stand.

In a report last year, the former business minister Lord Davis said FTSE 100 companies should aim to have at least 25 per cent female boards by 2015.

He stopped short of recommending that the government introduce quotas, but said ministers should “reserve the right” to change the law if companies did not achieve “significant change” voluntarily.

Is there evidence that increasing female representation will increase profits – and is a quota the best way to achieve equality?

The analysis

A number of studies, particularly ones carried out over the last five years, have indeed shown than firms who have more women in senior management and board roles tend to perform better.

In 2007, management consultants McKinsey & Company surveyed 101 large corporations across the world and found that firms with three or more women in senior management roles tended to score more highly on nine key measures for corporate success, including leadership, motivation, innovation and accountability.

The researchers found that there had to be a “critical mass” of about three out of ten women on management committees for there to be any discernible effect.

A second study of 89 European companies which scored highly on gender diversity found that those companies performed better than their rivals in purely financial terms too.

The companies with the most women at the top saw their share price rise by 64 per cent on average over two years compared to the sector average of 47 per cent.

In 2009 Catalyst, a US organisation that promotes women in business, looked at all companies that appeared in the US Fortune 500 index over four years.

The study found that returns on equity, sales and invested capital companies were all significant better in firms with the most women in their top management teams compared to those most dominated by men – 53, 42 and 66 per cent higher respectively.

Again, the results were strongest in companies with at least three women on the board of directors.

And when researchers at Leeds University looked at 17,000 businesses that went bust in 2008, they found that having at least one woman on the board cut the risk of insolvency by 20 per cent. Having more women on the board made bankruptcy even less likely.

The team concluded: “Analysis of insolvency risk suggests that having female directors reduces the likelihood of insolvency and that companies with female directors appear to take on less debt and have better cash-flow.” They speculated that the male tendency to take more risks may have been an explanation for the findings.

In 2009 researchers from the Cranfield School of Management did an overview of more than 400 different pieces of research on the issue and concluded that “gender diversity on corporate boards contributes to more effective corporate governance”.

Earlier studies tended to provide more mixed results, and most researchers point out that they are finding evidence of correlation rather than causation. In other words, firms with more women at the top might perform better, but we can’t know for sure that it’s the women who are making the difference.

So there’s a good deal of research to back up Mr Cameron’s position that more women at the top will help firms perform better. And there’s some evidence that a minimum of 30 per cent representation is a better target to aim for – and that’s something the Prime Minister also said he backed.

This doesn’t answer the question of whether we need a government-enforced quota to achieve better boardroom representation for women, or whether it’s better to let businesses put their own house in order without interference from the state.

On the one hand, the Norwegian experience doesn’t suggest a quota would spark the disaster some commentators have predicted.

Little clear data on the impact of the quota on the Scandinavian country’s economy has emerged yet.

But despite predictions that the quota of 40 per cent women on the boards of all listed companies would make Norway less competitive, the country climbed from 13th place in the World Competitiveness Yearbook in 2007 to eleventh place in 2009, after the law changed.

And the first major study on the introduction of the 40 per cent rule in Norway says that companies would not have rung the changes themselves without being forced to by law.

On the other hand, Mr Cameron was right when he pointed out that the situation is beginning to improve in the UK without government interference.

Since Lord Davis’ report in February last year, 100 women have been appointed to the boards of FTSE 100 and 250 firms. Some 27 per cent of all new board appointments have been women over the last year.

In the same period, the numbers of FTSE 100 companies with all-male boards has almost halved, falling from 21 to 11, while the number of female FTSE 100 directors has risen from 12.5 to 15 per cent. Progress has been much slower over the whole of the FTSE 350.

What about that “lost” £42bn?

This figure emanates from the Department for Business, Innovation and Skills (BIS), who published this report on geeing up small businesses last year.

It’s difficult to FactCheck this figure properly as it is “an estimate based on a variety of data sources”, according to BIS, and they are not able to talk us through how they calculated it.

It’s certainly true that there are more female-owned businesses in the US than the UK, although it can be difficult to compare like with like.

In 2006, BIS estimated that 28 per cent of businesses in America were majority or wholly owned by women, compared to between 12.3 and 16.5 per cent in Britain.

And the Global Entrepreneurship Monitor estimates that 5.6 per cent of American women are entrepreneurs, compared to 4.4 per cent of women in Britain.

The Department’s number crunchers say the difference equates to 600,000 businesses, and £42 billion in lost economic benefits.

In the absence of a thorough explanation, we can’t verify that number, but we can say that it makes sense that there would be a big theoretical economic impact if rates of female entrepreneurship suddenly soared.

 The verdict

There’s a strong evidence base for the idea that having more women at the top of the business world may improve economic performance, although the jury’s still out on whether a Norway-style quota will be necessary here.

On the separate topic of women who own businesses, we can’t verify that magic number of £42bn in the absence of a thorough explanation, but it does make sense that there would be a big theoretical economic impact if rates of female entrepreneurship suddenly soared.

By Patrick Worrall