The Smartest Financial Decision Most Startups Can Make -- But Don’t

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The lack of gender diversity on a company’s board of directors can lead to more homogeneous decision making and less innovation.

By Penny Herscher (CEO, FirstRain)

Much has been said recently about the lack of women on company boards of directors, and for good reason. In a 2011 McKinsey survey of companies in nine European countries, women made up only 17 percent of corporate boards -- only a 5 percent increase since 2007.

Despite the progress women have made in business, not enough women lead companies, even though the data out there speaks to fairly significant advantages to having mixed-gender leadership.

Better Decision Making

Firstly, it’s been proven by multiple studies that diverse teams make better decisions, outperforming homogenous groups by a considerable margin.

According toa recently released study by the Anita Borg Institute, “Diversity improves problem solving by way of bringing together… unique skill sets, experiences, and complementary knowledge.” Having everyone see things from the same perspective inevitably leads to rather narrow-minded decisions, riding the team into a rut and stalling innovation.

By bringing different kinds of people together, the group is forced to consider varied solutions, while reconsidering their own. Problem solving gets better and innovation thrives — an advantage critical to any business, but especially for those of us in tech.

More Innovative Products

Because diverse teams have different backgrounds and understand one consumer group perhaps better than their coworkers, those differing experiences often lead to more successful products.

Not only is innovation greater, but having employees with varying experiences means they can design and build a product that will be more widely appealing. With a homogenous group, there are almost certainly experiences they miss simply because they have never had to take them into account.

Given that a diverse group leads to better decision-making and better products, it follows, then, that companies should do better financially by including women — and the figures corroborate that assertion.

Higher Earnings

McKinsey’s “Women Matter study from 2013 noted that “companies with top-quartile representation of women in executive committees perform significantly better than companies with no women at the top” — to the tune of 47 percent more return on equity and 55 percent higher average earnings.

At FirstRain, where I am CEO, our board is 50 percent women, and our senior leadership team is split right down the middle. As a Silicon Valley startup, we must be on the leading edge at all times. And so, knowing what we do about the benefits of mixed-gender leadership, we go with the proven solution and hire a team that will give us the best products possible.

What other advantages do you see to having mixed-gender leadership?


About the guest blogger: Penny Herscher is the CEO of FirstRain, a personal business analytics company in Silicon Valley. Originally a mathematician from Cambridge University in England, Penny worked in software engineering, marketing, business development and general management on her path to CEO. She’s a big believer in diversity – both in building careers paths and in building teams – to bring richer experience into leadership and decision making.