The Economics of Gender Balance

Marc Beckmann

Is gender diversity the answer to changing how we do business nowadays? In this essay, Julia Profeta Johansson looks at both the differences and complementarities of women and men to argue for a new way of looking at the gender issue. Instead of calling for gender diversity, which could be understood as inclusion only, Julia argues for gender balance, aligned to the social and environmental impact mindset as a powerful tool to advance economic development and well-being.

In recent years, the topic of female empowerment and gender equality has finally become more “mainstream.” Several movements have become relevant, like #heforshe or #TimesUp, along with regulations such as increasing the number of women on corporate boards. The problem is that, quite often, the buzzwords and catchy hashtags are used without an understanding of what gender diversity truly means and how to properly apply it in practice.  For some, it is a social impact issue, a human right for equality. For others, gender equality means economic parity. So what is it? Should we fight for gender equality, gender diversity, gender parity of opportunities? Should the future be female? Is gender diversity the answer to changing how we do business nowadays?

Julia M. Profeta Johansson is an impact investing and venture capital specialist based in Berlin, Germany. Marc Beckmann

In 2015, 193 Member States of the United Nations agreed on the 2030 Agenda for Sustainable Development, which calls for 17 main objectives – the Sustainable Development Goals. Goal #5 addresses the topic of gender equality and empowerment of all women and girls. One of its sub-targets is “to ensure women’s full and effective participation and equal opportunities for leadership at all levels of decision-making in political, economic and public life.” It is a target that clearly defines a kind of equality that we should strive for: participation and opportunities.

But as several studies have highlighted, gender diversity alone does not always improve, for instance, a company’s economic performance. This potential economic upside also depends on the larger culture that the company is a part of. Culture is a very important factor in shaping people’s mindset when it comes to embracing, and leveraging, the upsides of gender diversity. That’s why I believe it’s so important to bring together several arguments that are normally explored separately.

Before diving into scientific findings, we have to remember the single most important thing about diversity: we are all HUMANS. It doesn’t matter who we are, where we come from, no matter our beliefs, our gender, etc., we all deserve to be respected in the same way and have access to the same opportunities. How individuals will then deal with the opportunities and exercise their preferences should be their own decision. Once we accept this, we can start to understand our differences, how to deal with and embrace them, making the most out of them. Our differences stem essentially from our different biology and how two hormones basically shape what we call the sexes in its broad definition. Based on that, men and women might present distinct behaviors and consequently different productive outputs that vary along a vast and complex range.

Culture is a very important factor in shaping people’s mindset when it comes to embracing, and leveraging, the upsides of gender diversity.
Julia Profeta Johansson

Thus, to better understand these differences, specifically how, in general, females work differently than males, and how we can leverage these differences (especially in the business world), let’s look at them from the perspectives of biology, behavior, and production.

Disclaimer: These differences are neither deterministic nor black and white. This article is distinguishing between female and male traits as a generalization that might help us better understand the bigger picture before diving into individual cases. It’s less of a binary distinction and more about patterns of gender-based attributes.

First of all, we have to acknowledge that apart from looking differently from the outside (biological phenotypes), women and men indeed have physiological and hormonal differences that also impact their psychological traits. These differences provide us with different abilities and skills, which tend to appear more often in one gender or another.

Our Biology Is Different

Taking a Look at Our Brains

I don’t know how well you know your own brain, or how much you remember from biology classes in school, but different zones of your brain are responsible for different functions, including emotions, behavior, etc.


Brain Differences

The brain comprises structures like the prefrontal cortex (PFC), the anterior cortex, and the amygdala, which are responsible for controlling, among other things, social behavior, judgment, and consequential thinking. In a nutshell, the PFC and the anterior cortex are larger and develop at an earlier age in women. This generally explains why girls might take fewer risks as teenagers when compared to males of the same age and suggests that women should have more processing power for details, as well as an advantage in many of the higher cognitive functions including language, judgment, planning, impulse control, and conscientiousness, in addition to emotional response. Also, women tend to spend more time ruminating, trying to process emotions, and, consequently, worrying. The amygdala, on the other hand, has more volume in men. As it is part of the system that controls our emotions and survival instincts, telling us how we respond to fear and aggression, it might explain why men often resort to aggression in a crisis.

When it comes to female and male brains, they, in essence, look and work the same way, but the topic has attracted more and more interest in the past decades, and several studies have been carried out to better understand the differences and similarities. While some long-established theories have been strongly refuted lately, others have been confirmed. To quote a Stanford Medicine article, it’s not about “how well they [the brains] work... Our differences don’t mean one sex or the other is better or smarter or more deserving… but there are brain differences, and …. these differences may contribute to differences in behavior and cognition.” Nevertheless, these differences are not “black and white” and normally they would be perceived more at the extremes of a statistic distribution. And they are totally complementary.

Of these many brain structures, a few are directly related to how we behave, think, and react, and are worth highlighting for the purposes of this article. The brain is an interconnected system and some parts, like the limbic system, deal more specifically with, for instance, our emotions, memories, and arousal (or stimulation).

Thus, from a biological perspective, we can expect different behavioral outcomes from men and women which in turn contribute to different psychological approaches to life.
Julia Profeta Johansson

The physiological differences in our brains are mostly a result of the effect of testosterone and estrogen. They are responsible for whether an embryo develops into a male or female fetus, and all the variations in between. They kick in during puberty and promote gender-specific characteristics, such as facial hair in men and breasts in women. They also stimulate the production of male sperm and female ova. Even the hypothalamus is expressed by different genes in male and female, and it has been found that such differences are regulated by sex hormones.

Thus, from a biological perspective, we can expect different behavioral outcomes from men and women which in turn contribute to different psychological approaches to life. Biologically speaking, there are strong arguments to call these differences "sex differences" instead of "gender differences," but this would be a topic for another discussion.

Behavioral Differences

Lastly, we can look at productivity, which, for the purposes of this article, refers to behaviors and skills that can be useful for the business realm. A decision-making process should consider different approaches to issues and situation, thus granting advantage to teams and groups that are diverse and balanced.

Looking at a few behaviors that directly impact the decision-making process, the common belief that women are intuitive, for instance, is correct. Men, on the other side, tend to take a more fact-based approach to their environment, often scanning for threats and challenges.

When it comes to problem-solving, the masculine approach is to define and clarify the problem. It begins by eliminating and isolating issues. Women often define a problem in broader terms and examine a wider array of potential factors before going into solution mode.

Extensive research has shown that women excel in several measures of verbal ability, while men, on average, have superior visual-spatial skills. On the other hand, several studies have shown strong evidence that mathematical and scientific reasoning develops from a set of biologically based cognitive capacities possessed by both males and females – meaning that both have equal talent to develop in these fields.

Women or men will not necessarily show all of these characteristics, but by having a gender balanced team, the chances of having these different ways of tackling an issue is higher and thus more beneficial.

Characteristics necessary for a good decision-making process. Julia Profeta Johansson

The Economics of Gender Balance

In a world still controlled by capitalist principles, it is important to understand the direct economic consequences of these differences and similarities. I believe that the way capitalism is structured nowadays is not what will move us forward in the coming century as it is a model based on profit and shareholder wealth maximization. Nevertheless, it is helpful to analyze the impact on the success metrics currently used.

Therefore we will analyze the upside of female inclusion from an economic point of view, both from the supply and demand sides. On the supply side, while GDP (gross domestic product) has been increasingly challenged as the true measure of economic success and development, it brings a helpful perspective regarding the direct impact on the current economic structure. On the demand side, consumption as it is promoted nowadays also has to change, but it is still what drives capitalist economies and businesses. So it provides a very objective indicator of women’s relevance in the economy.

We now need to create new narratives to make cultures embrace this idea of gender balance.
Julia Profeta Johansson

The IMF has recently released a study in 2019 stating that the economic gains of gender inclusion are bigger than imagined. From a macroeconomic, sectorial, and company-level perspective, data shows that women and men complement each other in the production process, creating an additional benefit of growth from increasing women’s employment. In other words, adding more women to the labor force should bring larger economic gain than an equal increase in male workers (reflecting the fact that, in economists’ jargon, the marginal contribution to the workforce of a woman is higher than a man’s).

"When focusing on the startup world, stats are now also available showing that technology companies led by women are more capital-efficient." – Julia M. Profeta Johansson CoWomen

From an individual business’s perspective, data from several different studies has also shown that gender balance increases bottom-line results. For instance, companies with at least three women on their boards had median increases of 10% in return-on-equity (ROE) and 37% on earnings-per-share (EPS) between the years 2011-16. On the other hand, those with no women on their boards had median decreases of 1% and 8%, respectively, over the same period. Also, adding any number of female directors showed a direct correlation with higher increases in EPS compared to losing women from the board during the same period. Banks are also trying to understand and model the impact of gender balance; Credit Suisse, for instance, has linked board diversity to higher equity, lower leverage, and higher price/book ratios.

Women in Startups

When focusing on the startup world, stats are now also available showing that technology companies led by women are more capital-efficient, achieving 35% higher ROI, and, when they receive investment capital from venture funds, they present 12% higher revenue than startups run by men, according to the Kauffman Foundation. Additionally, closing the pay gap worldwide and achieving equal participation in the workforce could increase the size of the world economy by some $160 trillion, according to a World Bank study. That’s almost double the current global GDP.

Women as consumers have already transformed the economy. Women make more than 90% of purchasing decisions when it comes to home furnishings, vacations, homes, 60% in the case of automobiles, 51% when it comes to consumer electronics. They are not simply consumers, they are also influencers. Female spending is close to $30 trillion dollars and women’s yearly earnings are reaching $20 trillion dollars. In sum, women actually represent a growth market bigger than China and India combined. So, from a business perspective, it should be a straightforward decision not to ignore female consumers but to tailor solutions for them. And yet, products, services, and marketing campaigns fail to address their true needs and demands.

From a business and economic point of view, it makes sense to embrace gender balance in the business world. We now need to create new narratives to make cultures embrace this idea of gender balance. Not conflictual and negative narratives, condemning old habits, but positive ones where new rituals and perspectives can generate more prosperity (and happiness!) for everyone by taking advantage of the complementarity of men and women.

In conclusion, gender balance, which encompasses diversity and inclusion, is not simply a social impact question. It’s also the right thing to do from an economic perspective. It will bring both short- and long-term prosperity as well as open new markets and opportunities. And considering that all humans deserve the same respect, women have the right to have access to the same opportunities as men, the same education, the same healthcare, the same jobs.

But it will not be enough to stop here. Gender balance in itself is not sufficient social impact. We need complementary and balanced approaches to all kinds of topics, but especially in the business world we need a completely new mindset to see real impact happening. If women are given the space to contribute their female thinking but don’t bring the impact principles to the table, we might fail once again to break the business patterns that have been in place for the past 100 years. By impact principles I mean businesses and investments that aim to generate both financial and social/environmental impact, that are above all serving society and fostering a more sustainable, just, and joyous world, instead of simply using customers as a way of generating profit; businesses that are not harmful but inclusive, that are considerate of all stakeholders, that are real instead of seeking unrealistic valuations (short lived be the unicorns!).

So, we, women, not only need to step up and speak up. We need to embrace a holistic perspective of considering multiple stakeholders and bring social and environmental topics to the core of everything we do. We have to use the space that is slowly being given to us (yes, this has to speed up!) and also fight for our place at the table to transform our economy into an economy of well-being, where GDP is just one though not the most important metric. We have to transform the mainstream business world into an impact business world, in order to create the future that we want to live in!

For you, men, it’s time to embrace new perspectives and seek a gender-balanced decision-making process to see better returns in both the short and long term. Should the future be female? I do not think so. It’s not about women taking over the world, but about working side by side with men in rethinking the way we live on this planet.

If you want to go deeper into facts and figures about female economic empowerment, I recommend this extensive summary prepared by UN Women as well as the following publications: (1) IMF Report on Women & Growth, March 2019; (2) The Tipping Point: Women on Boards and Financial Performance, MSCI, December 2016; (3) "The CS Gender 3000: The Reward for Change," Credit Suisse Research Institute, 2016.

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