What Women Mean To Business

“The best stimulus for the economy is to invest in women entrepreneurs,” stated Lars H. Thunell, CEO of the International Finance Corporation–the private sector arm of the World Bank–at an International Women’s Day event.

That remark may seem hyperbolic to some economists, but it reflects a reality at two levels–first, the growing tide of women entrepreneurs worldwide, and second, proven U.N. studies which show that increased earnings among women results in improved healthcare and education of their families. In other words, upgrading women’s economic status is key to sustainable development and according to the IFC’s CEO, key to economic recovery globally.

Within the last two decades, women’s entrée into business ownership has grown dramatically. In the United States alone, 40% of all privately held firms are now women-owned, and women now comprise the majority of new U.S. small business owners. Those businesses now generate $2.8 trillion in revenues yearly, according to the Center for Women’s Business Research, and they employed 23 million workers in 2009.

In Europe, one out of every three small businesses is owned by women. In China, the second largest economy in the world, women own 40% of private businesses, and in Japan, one out of four small businesses is owned by a woman. In every corner of the world, women have come to microentrepreneurship in majority numbers as well, catapulting many families out of poverty. In Rwanda, a country best known for genocide that killed so many of the country’s men and boys, women now own 40% of the nation’s businesses—and growing. It is also the only country in the world where women parliamentarians, at 55%, form the majority, and many say that it’s a direct consequence of their growing economic power. One minister stated that the Rwandan economy recovered on “the backs of its women.”

Since small businesses form the backbone of every economy in the world, the fact that women are a growing group of those owners signals a shift that needs to be accelerated, according to the IFC. Right now, government-sponsored stimulus packages around the world are focused on infrastructure projects that are meant to generate jobs. What the IFC is signaling is that some of those funds should be targeted at buttressing small businesses that depend on loans to survive and thrive, but especially for women-owned enterprises, which have more tenuous lifelines.

In addition to women’s growing economic clout as entrepreneurs, women also play a pivotal role in the global economy in two other key aspects—as workers and as consumers. Right now, women make up 35-50% of the paid workforce in every corner of the world and their numbers are growing, both as a consequence of sheer need that forces many to seek employment outside the home, or to make use of advance training and education which have made them more marketable. In Europe, Japan and South Korea, which are all facing a rapidly aging workforce, training women for the jobs of the present and the future is key to survival. According to a 2007 Goldman Sachs study, reducing the gap in employment between women and men in different parts of the world would boost GDP—by 13% in the Eurozone, by 16% in Japan, and by 9% in the U.S. The report concludes that “Gender inequality hurts economic growth,” or to put it another way, developing women’s business leadership is key to a competitive 21st century workforce.

As women’s income has risen due to entrepreneurship or employment, so has their earning power. The result is that women in the developed economies now make the majority of buying decisions—80% in the U.S. alone. American women are the majority of car buyers, Internet users, education and healthcare consumers, not to mention office equipment purchasers for their own enterprises or the organizations they work for. What this means is that what a woman decides to buy is key to profitability of many companies in every country. That is not only true for women in developed economies such as the U.S, but also for village women in India, who purchase Nokia phones for use by their fellow villagers to connect them with the outside world for a fee; or the women employed by Unilever and Danone in the Philippines and Bangladesh to sell household products or yogurt door to door—all generating revenues for themselves for the first time while providing market penetration for companies in areas normally deemed unreachable in the past.

To sum up, women not only bring income home to their families, they also create jobs through the businesses they create no matter of what size, and impact their local and national economies by what they decide to buy. It is clear that they are critical to any economic recovery, and stimulus packages worldwide should consider the gender impact of any proposed plans.

This ‘business case’, while widely accepted by development professionals, is not as clear to the majority of government and business leaders, who still see initiatives to advance women as a social issue as opposed to an economic imperative. There is a plethora of research not only from the U.S., but also Europe, Turkey and Vietnam that provide data indicating that the more women in senior management or boards of directors, the better is a company’s financial performance in terms of return on assets, return on equity, increase in share value, greater intensity in oversight functions or all four. The same results are obtained no matter which country conducts the study or the number of companies covered in the survey. The Finnish Business and Policy Forum’s research covered the largest number of companies—12,728—and it showed that those businesses with majority female boards outperformed those companies with majority male boards by 20%. The longest-term business case study was conducted by Professor David Ross of Columbia University, who looked at 1,500 U.S. companies over a 14-year period, and found that companies with women in senior management outperformed their peers in terms of return on assets and annual sales growth.

So, if women are performance drivers for corporations, for small business growth, consumer expansion, and economic sustainability as a whole, what needs to be done by governments and the private sector to accelerate the realization of women’s economic potential? For one thing, leaders from both sectors, who publicly acknowledge women’s economic value, need to act on it. A survey of 1,500 global executives by Mckinsey & Company (Women Matter, 2010) showed that while a majority acknowledged the business case for women’s inclusion into leadership roles, few placed gender diversity at the top of their agenda, let alone in it. Pressure on companies to address this issue is being placed by governments through mandated quotas for women directors, some corporate governance commissions and stock exchanges that are making board diversity a necessary component of good corporate governance, and institutional shareholders like large pension funds, who are demanding changes in board composition that is more inclusive. Companies need to move from viewing women’s initiatives as a function of corporate social responsibility externally and human resources internally, to a function of strategic market growth.

Governments need to implement and monitor equity laws already in place, as well as enact legislation that open access to credit for women, that provide funding for women small business owners and above all, that enable women to inherit and own land and other forms of property. Economic participation hinges on education, and clearly, girls’ access to it must be implemented. These are well-known measures to which nations sign on in numerous U.N. resolutions. Well, it’s time to get beyond good words and good will. For economies to survive and thrive beyond this recession, women’s economic power must be harnessed.

Irene Natividad is President of the Global Summit of Women, a 22-year-old economic forum focused on expanding women’s economic opportunities worldwide, which will be hosted by Athens, Greece for the first time on May21-June 2nd.

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