Improved gender parity boosts financials of Utility companies

15 March 2016 Consultancy.uk

Gender parity has been, in a number of recent academic and industry reports, correlated with improved business performance in several industries. In a new study from EY, the correlation has also been identified for the global utilities industry. The study finds that of the top 200 largest industry players, 5% of executive board positions are held by women, while 13% of senior management teams are female. The level of progress within the utilities industry was found to be relatively stagnant, suggesting that – given the business case for equality – more needs to be done within the industry.

Improving gender equality at the top of business remains a key issue for businesses seeking to improve their bottom line, according to yet another study. EY, in its recently released report titled ‘Women in Power and Utilities Index 2015’, considers the number of women being engaged at boardroom and executive level within the largest 200 global utilities companies, as well as the effect the number of women in top level positions have on the Return on Equity (ROE).

women at the top

Ups and downs
This year’s report finds a mixed bag in terms of improvements to the number of women at board level within the utilities industry. Women make up 5% of boardroom executives, up from 4% last year, while the number of women on the senior management team, too, increased slightly, from 12% last year to 13% this year. The number of women performing as non-executive directors fell slightly last year, from 18% to 17%, while the total number of women on the board – in the position of executive as well as non-executive – fell from 15% to 14%.

regional representation

Regional disparity
While the average number of women across all utilities companies remains disproportionately in favour of men, regionally, considerable differences are to be found. For instance, in Latin America and Caribbean, there are no female board executives, although women represent 17% of the senior management team. The Asia-Pacific region, too, sees few women active as board executive, and relatively low levels of senior management team and non-executive direct engagement, at 10% a piece.

The top performer, ironically maybe, is Africa and the Middle East, where board executives make up 14% of the board, while 22% of non-executive directors are women. Relatively low performance is booked in the senior management team, of which 7% are women. North America performs poorly in terms of board executives, at 5%, although this is partly due to the corporate structure where the CEO is the only board executive – with the majority of CEO positions being in the hands of men. The North American region performs relatively well in terms of senior management team and non-executive director female representation, at 18% and 23% respectively.

improving ROE

Women ROE
EY’s research identifies a correlation between the highest and lowest performing organisations in terms of gender parity and the return on equity (ROE). The research finding that the top 20 utilities companies enjoy an average ROE of 8.5%, while the bottom 20 utilities have a ROE of 7%. A 1.5% difference, in an industry that has seen its average ROE remain relatively low in recent years, can have impressive effects on profitability due to the large capital involved in the industry. For example, a medium-sized utility with $10 billion in assets would earn $75 million less profit after tax with a 7% return than an 8.5% return, assuming 50% of its funding requirements were met with shareholder equity.

global strategy

Equating equality
EY’s findings that gender parity is correlated with improved business results, reflects wider into the consultancy industry. One report from McKinsey & Company, titled ‘Diversity Matters’, revealed that companies in the top quartile for gender diversity are 15% more likely to have financial returns above their national industry peers. While a Grant Thornton report, titled ‘Women in business: the value of diversity’, highlights that up to $655 billion may be missed by a lack of diversity within the largest publically traded companies in the US, UK, and India. BCG, in association with Plan B, found that not merely gender diversity, but diversity more generally, is positively correlated within business success. One concrete example, from research published in the Journal of Economics and Management Strategy, showed that for one multinational company, going from an all-male or all-female office to one evenly split along gender lines was associated with a 41% increase in revenue.

The road to improving the disparity, even when a focus is placed on the business, rather than the ethical, case, is likely to be a long one. Parity, which is defined to be between 35% and 50% according to McKinsey – with EY citing a figure of 40% – at the current rate of progress may never be reached. A focus – in terms of research – on creating a culture and organisational structure that facilitates the kinds of balances required to improve the number of women within executive positions, is currently being performed in the UK by the MCA and She’s Back, while globally businesses are looking at ways to improve the numbers by creating quotas, as well as creating programmes, including A.T. Kearney’s Encore and PwC’s Back to Business, and improving benefits that encourage and facilitate a balance between life and career that provides for the existence of both.

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