Woman led companies are outpacing the market, says EY

15 June 2018 Authored by Consultancy.uk

Female led companies are projected to see solid growth rates over the coming year. However, new research highlights that female led companies find gaining access to funding considerably more difficult than male led companies – with access to venture capital particularly difficult. 

In light of various studies which have pointed toward improved diversity in a corporate culture yielding improved results, some companies have made efforts to shatter the glass ceiling at their firm. Notable examples including consulting firm Brickendon – which announced last year that 50% of its senior management will be female by the end of 2019 – and Accenture, the North American arm of which recently targeted total gender equality by 2025.

In spite of this, however, a recent report into company governance across the UK’s largest companies more generally revealed that businesses continue to drag their feet when it comes to practical implementation of diversity policy. Only 14% of FTSE 250 companies were able to say that more than a third of their directors were female, while reporting on diversity among these companies also declined in recent years. In 2014, 30% of FTSE 250 companies worked to outline company diversity in detail, compared to 11.2% last year.

Growth rates expected in the coming year

Business leaders have once more been prompted to take a long hard at how they are operating, however, thanks to a new a new study conducted by EY. The report by the Big Four firm, titled ‘Is the x chromosome the x factor for business leadership?’, involved 2,766 C-suite participants from 21 countries across the globe, and found that women leaders tend to operate companies that are focused on improving their customers’ experience – something which has become increasingly vital for success amid a crowded market place, littered with digital disruptors utilising technology to win customers via improved consumer experience offerings.

Such leaders see customer demand as the biggest driver for innovation, cited by 34% of women in contrast to 16% for men. The same proportion of both, 25%, state that investment in technology is to improve customer experience. The focus on customers is likely to become increasingly important, particularly as women increasingly account for a larger role in the market as consumers. Currently the income of the group stands at $18 trillion and by 2028 they could account for 75% of discretionary spending.

Companies led by women are also substantially more confident of their potential for growth than their counterparts led by men. At the top end, 30% of companies run by women expect revenue growth in excess of 15%, compared to 5% of firms run by men. Meanwhile, 14% of woman led companies and 22% of man led companies project growth of between 11-15%.

Factors increasing companies agility

Traditionally, business has been a domain dominated by men, fostering a hyper-masculine dog-eat-dog approach to operations, and making cooperation unlikely. This is also evidenced as strong alliances are marginally more likely to be formed between with woman led businesses at 25%, than man led businesses, at 22%. As many firms work toward strategic partnership models in order to spread risk and share in success, the traditional mode of ‘masculine’ business looks increasingly out-dated, and something which could well be more of a hindrance than a help in future.

Old Boys Club

In spite of woman led businesses seemingly tapping into global trends more tightly, however, they are still less likely to be awarded funding. EY researchers found that a stunning 52% of woman led companies have no outside funding, while 70% of man led companies had access to external investment. 20% of woman led companies meanwhile had no plans on accessing funding, compared to just 3% of counterparts bossed by men.

This lack in confidence in the ability to obtain funding on the part of woman business leaders suggests that such applications, while potentially lucrative, and enabling an accelerated growth trajectory for successful firms, are ultimately a waste of time. Instead, funding sources are disproportionately accessed by firms led by men. Reservations among funding sources regarding woman led organisations would appear to play a role in the awarding of funding then, even though other metrics such as whether an organisational culture allows for failure, a firm’s talent strategy and customer understanding demonstrated little difference between the groups.

Recruitment priorities

EY’s study also noted that woman led companies are relatively new, with 26% having commenced trading less than five years ago, compared to 11% of man led companies. Strikingly however, many of these young woman led companies had no venture capital backing, particularly if the leader is also a founder. In this case, just 10% of all venture capital funding went to companies with a woman founder, and only 3% to a company with a woman as CEO. A lack of funding can have long-term negative impacts on companies, and evidence suggests that the inclinations displayed by private equity also play into the wider attitudes of the financial sector as a whole – the area with the largest gender pay gap in the UK.

The paper concluded that more than half of woman led companies have no external funding, compared to under a third of man led companies. As a result, the funding gap means companies with high growth potential fail to secure early investment have a harder time scaling up.

Eri Sekiguchi, an Assurance Partner and Leader of EY’s Japan Winning Women Network, said, “While access to capital is a significant barrier at a global level, what we observe in Japan is that female leaders also face the challenge of a perceived lack of management knowledge when compared to their male counterparts. To provide support and mentorship to female entrepreneurs and help them succeed, the EY Entrepreneurial Winning Women program is operating in this market, as well as in more than 50 countries around the world.”

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