Why Are Women-Led Businesses More Successful?

Women-Led Businesses vs. Men-Led Businesses

Happy Afro-American businesswoman in a meetingA host of scientific research has demonstrated that business enterprises led by women tend to perform better and drive fatter bottom lines than companies with men at the helm. One of the biggest reports, and the one that first revealed the so-called “woman effect”, was McKinsey’s “Women Matter” report, which found a positive correlation between the number of women in a company’s management team and its profitability. Another, published in USA Today in 2010, revealed that 15 women-led companies on the S&P 500 list did much better than the average return rate for the list, boasting returns of an average 46.1%, compared to 24.7% for the overall list. Yet a third such study, this one by Rothstein Kass, focused on a business area traditionally considered male territory - perhaps one of the most male-dominated ones - hedge fund management. The findings, however, were in tune with those of the research described so far. It turned out that hedge funds led by women generated returns at a rate of almost 9% over a three-month period in 2012, compared with 2.7% for the HFRX Global Hedge Fund Index. What’s more, over a five-year period, Rothstein Kass’s Women in Alternatives Hedge Index performed consistently better than both the HFRX index and S&P 500.

Relevant studies repeatedly demonstrate that women seem to be doing better than men in a leadership position; there is abundant research suggesting this. Yet the actual number of women in leadership is still low. Perhaps one reason for this lack of dynamic development is that no hard reasons determining this “women effect” have been identified yet. There has been, however, much hypothesizing on the subject, with suggestions focusing on factors such as a perceived risk aversion on the part of women, and their excellence at emotional intelligence. It could be this lack of hard data that is slowing down women’s ascent into business leadership, suggests Stephanie Marton, a BCG management consultant. This could also explain while there is still a surprising disparity between how women really perform in leadership positions and how their performance is perceived. Marton cites research from the University of Utah that revealed how female CEOs and company founders tended to be perceived as less capable than their male counterparts, in spite of the fact that their qualifications and actual performance were identical. This may sound outright shocking but gender stereotypes are deeply ingrained in the public mind, it seems, as shown more recently by another study, by Gallup, which found that more Americans, 35% to be precise, still preferred to have a male boss, as opposed to 23% who would prefer to be led by a woman. The difference might seem small but in the wider corporate context it remains significant.

One of the factors that have been suggested to determine women’s success in leadership is the supposedly greater risk aversion that they display. There is scientific literature backing this hypothesis, such as a study by BlackRock that found women to be more conservative when it came to saving and investing, preferring to invest in low-risk assets and avoiding the riskier equity markets. A number of other studies have found that women tend to respond to risk differently than men, to the same tune of a lower inclination to take considerable risks on the part of women. However, and this is the more interesting part, there are researchers who question this evidence, arguing that there is no significant difference in the way men and women deal with risks.It’s a question of perception, wording and societal norms. One such researcher, Julie Nelson, in a working paper for the Global Development and Environment Institute, argues that studies are simply worded in a misleading way, suggesting that risk aversion is inherent in women and universally valid, while in actuality this is not so. For one thing, there are enough examples of women decision-makers who have demonstrated they are not more averse to risk than men in the same position, which means that the risk aversion tendency is in no way universal. Nelson argues that inferences from statistical data are not always as straightforward as it may seem and statements such as “Women are more risk-averse than men” lend a false straightforwardness to such data.

A fascinating example of research that disproves this risk aversion hypothesis included a survey of two communities, one female-dominated, in India, and one male-dominated, in Tanzania. Surprisingly, the study found that women in the female-dominated community were more competitive than men, and that men in the male-dominated community were more competitive than women. What’s more, women in the female-dominated community tended to be even more competitive than the men in the male-dominated one. Such results certainly give food for thought on the issue of whether or not being prone to risk is a social construct rather than an inherent, biologically determined trait. According to Dr. Renee Adams, professor of finance in the Australian School of Business at the University of New South Wales, this data shows that there are no biological differences between the genders; rather, that the development of our inherent competitiveness depends on whether the society we live in encourages such behavior in one or another gender. She also suggests that it could have implications for the gender gap in pay — if there was no such gap, perhaps differences in behavior would diminish and some typically female behaviors would be reversed. However, Adams has a word of caution when it comes to interpreting research focusing on gender differences: much of the risk-aversion literature, she says, is based on samples from the general population and results are extrapolated to apply for decision-makers. This diminishes their credibility, Adams argues. The reason could be because leaders are in high-pressure positions, carrying much greater responsibilities, but whatever it is, in her work, looking specifically on male and female board members, she discovered that a diverse board did not lead to lower risk aversion.

And what about emotional intelligence? It is often assumed that women are more emotionally intelligent than men simply because the word ‘emotions’ sparks a direct association with femininity. While it’s true that women tend to be more emotional, this is not the same thing as emotional intelligence, and research shows that on average, there are no differences in the emotional intelligence of men and women. There are, however, significant differences in particular aspects of emotional intelligence, that could give women the upper hand in a decision-making position. A study by non-profit organization Six Seconds shows that women are notably better than men at predicting the emotional consequences of actions. This, in effect, makes them better at strategizing their use of emotions to get to a desired emotional consequence. Analyzing a sample of 24,400 people, Six Seconds found that women consistently tend to outperform men in terms of interpreting accurately emotional information, being able to consciously choose their own emotional response and being able to consciously apply emotions toward accomplishing a certain goal. When it came to specific competencies in the area of emotional intelligence, men came on top with regard to three of these competencies: namely the ability to pursue noble goals, the ability to engage intrinsic motivation and what Six Seconds calls navigation of emotions - that is, responding rather than reacting. However, in the leadership part of the sample, many of these differences became insignificant, with women leaders scoring as highly as men on two of these three competencies (men were still better at engaging intrinsic motivation) ,and outperforming them even more in the competencies where the general sample showed women did better than men. Some of these competencies are essential for successful leadership, such as the ability for consequential thinking, for instance, which basically means that you spend some time weighing the possible results of your actions before taking them. Another core competency is enhancing emotional literacy, which means being able to accurately identify and understand feelings. Excellence at these competencies and work toward honing those in which men tend to do better, would, the authors suggest, give women an additional competitive edge in leadership.

It looks like the attempts to explain what makes women better business leaders than men create further complexity instead of giving clear answers to this question. Still, the data that says women are indeed better seems to be pretty much conclusive, which is a strong start in the fight against stereotypes that keep women at a disadvantage when it comes to leadership. Of course, there are completely different factors that are also at play, such as women’s own priorities when it comes to career development. The answers may be complex but they are there and some companies are already taking heed of what the statistical data shows. Google, for instance, has allocated $1 million for 40 global organizations that support startups with the aim of encouraging more women to set up businesses in the field of technology. Google’s global entrepreneurship manager Bridgette Sexton Beam said tech companies headed by women boasted a 35% higher return on investment and those backed by venture capital achieved 12% higher revenues than male-led companies. However you look at it, encouraging more women to become entrepreneurs will be of benefit for all parties concerned.


1. Marton, Stephanie. “ The Mysterious Success Of Female-Led Firms.” Forbes, February 2013.

2. Weiss, Todd R. “Google Encouraging More Women-Led Startups.” EWeek, March 2014.

3. Pletschet, Cliff. “Pletschett: Women-Led Companies Outperform S&P 500.” January, 2010.

4. “Women Hedge Fund Managers Outperformed Male Counterparts Last Year.” Opalesque, January 2013. http://www.opalesque.com/645013/Women_hedge_fund_managers_outperformed_male_counterparts_last501.html

5. “Americans Still Prefer a Male Boss.” Gallup Economy, November 2013.

6. Adams, Renee. “Are Women Decision Makers More Risk Averse Than Their Male Counterparts?” International Finance Corporation.

7. BlackRock. “Men vs. Women: Risk Aversion.” Nasdaq, November 2013.

8. Nelson, Julie. “Are Women Really More Risk-Averse Than Men?” Global Development and Environment Institute, September 2012.

9. Gneezy, Uri, et al. “Gender Differences in Competition: Evidence From A Matrilineal And A Patriarchal Society.” Econometrica, September 2009.

10. “Women’s Leadership Edge: Global Research on Emotional Intelligence, Gender, and Job Level.” Six Seconds, September 2012.