September 8, 2015 – Why Do Women Outperform in Business?

My last two blogs reviewed the research behind the number of women in business leadership and the correlated financial results that businesses with more women enjoy. Now, I want to shift gears and talk about WHY having more women in leadership drives better business results. I will share the leading hypotheses regarding leadership, innovation, communication and touch on why I think this is especially relevant for the target portfolio companies in True Wealth Ventures’ fund.

There have been several studies lately uncovering the fact that women make exceptional leaders. A McKinsey survey gathered the most important leadership attributes for success from a group of global leaders. The top four attributes – intellectual stimulation, inspiration, participatory decision-making and setting expectations/rewards – were all found more often in women leaders.

Women tend to excel in areas that are important for long-term growth – areas like cooperation, communication and sharing – according to the authors of theAthena Doctrine. Research by Zenger and Folkman states, “two of the leadership traits for which women outscore men  — taking initiative and driving for results — have long been thought of as particularly male strengths.”

As Erika Anderson, contributor to Fortune, has learned from her personal experience, “women make better leaders than men. They build better teams; they’re more liked and respected as managers; they tend to be able to combine intuitive and logical thinking more seamlessly.” There’s also the added benefit that companies with more women have fewer instances of governance-related scandals such as bribery, corruption, fraud, and shareholder battles!There is additional research showing how women’s leadership styles lead to increased innovation and that higher proportions of women at top levels of management are associated with increased levels of innovation intensity. An even simpler argument for gender diversity and innovation is that women and men bring varying perspectives to leadership, so the resulting wider knowledge base of leadership diversification spurs innovation.

Communication style is a recurring theme in these studies. McKinsey found through their Organizational Health Index that companies with three or more women in top positions are linked to well-functioning organizations. Research from Carnegie Mellon and MIT business schools, published in Science magazine, found that “teams with more women outperformed teams with more men. It was not diversity that mattered for a team’s intelligence, but simply having more women.” This had primarily to do with women having a higher social sensitivity, meaning they can “read the mind in the eyes,” as well as creating a more equal distribution of conversational turn-taking so everyone on the team shared their ideas.

Two slightly tangential points, but relevant for the True Wealth Ventures Fund’s target start-up markets, are first that women are more likely than men to pursue a venture with an environmental or social mission statement. Second, user-entrepreneurs, those who start a company to fill a need they have themselves, represent nearly half of the innovative startups founded in the U.S. that survive five years – and nearly half the founders of such firms are women. With women making 85% of consumer purchase decisions, the last fact should not be surprising. Simply put – women are best suited to identify and meet the needs of other women.

Pure leadership attributes, increased team innovation, more effective communication style, or a combination of all of these could be what’s driving the better financial results of women leaders – we may never know exactly. What we do know is that True Wealth Ventures is going to support those leaders, invest in those diverse teams, and enjoy the results of superior performance.