The Key to Start-Up Success? Women
Newly incorporated businesses with a female director are more likely to succeed than those with an all-male board: That’s what a study recently published in the International Small Business Journal has found. According to researchers Nick Wilson and Ali Altanlar from Leeds University Business School and Mike Wright from Imperial College:
"… gender diversity and composition of new boards are important in determining the trajectory of success or failure of new firms."
Gender diversity is a major contributor to a start-up's success and this study has more than enough data to prove it. Researchers collected 5.8 million observations on companies incorporated between 1999 and 2005 and monitored them until the end of 2008. They observed 60,000 incidences of insolvency and 600,000 cases of non-insolvency. They found that "the percentage of female directors within the board is significant" in determining the likelihood of insolvency, and the effect isn't trivial. Start-ups with an all-male board are 27% more likely to become insolvent than boards with one female director.
Researchers explain that their findings align with "past research show[ing] that groups with greater gender diversity generate more-innovative thinking in problem solving." Interestingly, once women occupied 50% of the seats on a given board, the marginal effect of adding more females started to lessen. Even though each additional woman did increase a start-up’s success, the marginal effect decreases once parity is reached. These findings lead researchers to conclude that gender diversity is at the heart of company success. They suggest that owners as well as lenders take the gender balance of a board into consideration before investing:
"Diversity in terms of gender balance appears to be important start-up considerations for owners and lenders."
If we all know that gender parity is good for business, why aren't more organizations doing it? Almost one third of Fortune 500 companies don't even have a single woman on their board of directors. What are they waiting for to embrace gender diversity?