We Know Gender Equality is Good For Big Business…
Each month, more evidence comes out showing the positive impact of gender equality on the private sector and business outcomes. Research from McKinsey & Company shows that companies with greater gender diversity in their executive team tend to have higher profits. A recent study by Forbes demonstrates that companies with more inclusive teams made better business decisions. On the flip side, companies with low rates of gender (and racial) diversity are likely to make less money.
Photo: USAID – Feed The Future
But What About Small Companies?
One important caveat is that most of this evidence comes from large companies in high-income countries. These studies focus on some of the largest and most recognizable public companies in the world, with shareholders, boards of directors, C-suites, and often, tens of thousands of employees. The incentives and leverage points for enhancing gender equality at these companies tends to center on publicly available data, shareholder demand, optics, and the risk of public scandal.
If you are a small business owner in Nigeria or Bangladesh, however, it may be easy to dismiss this research as irrelevant to your day-to-day work. What does it matter if gender-diverse boards generate more profits if most small- and medium-sized enterprises (SMEs) do not even have boards of directors?
The fact is that the business environment is very different for SMEs across the world—especially in low- and middle-income countries (LMICs). This underscores the need for nuanced evidence to demonstrate that enhancing gender equality makes good business sense across a variety of contexts, including for SMEs.
New research shows that smaller firms in LMICs account for more than two-thirds of all jobs and most new job creation. These businesses represent an estimated 90 percent of firms worldwide and contribute over 50 percent of GDP in most OECD countries and up to 40 percent of GDP in emerging markets. Such firms are also more likely than large companies in LMICs to hire from marginalized groups experiencing higher unemployment. Consequently, SMEs present a critical opportunity to enhance women’s economic empowerment worldwide, both through direct employment, but also through reaching women as suppliers and customers. Evidence on the impact of investing in gender equality on businesses’ financial outcomes for SMEs in LMICs is not as developed as research on large, often multinational companies in high-income economies. This is why it is important to start to collect data on what works in promoting gender inclusion within smaller companies.
Importantly, actors in the private sector engagement (PSE) space who seek to promote gender equality need to understand the different incentive structures at play for SMEs versus large, multinational companies. This may also mean PSE actors will need to pull different levers within these incentive structures to create lasting change.
Closing the Evidence Gap
To address this evidence gap, MarketShare Associates (MSA), under the Feed the Future Market Systems and Partnerships (MSP) Activity, examined the existing evidence on women-inclusive investments in SMEs in LMICs and developed a framework to support private-sector actors to prioritize their women-inclusive investments. This is part of a wider learning initiative under the MSP Social Inclusion Learning Stream to understand firm-level benefits. Aligning with firm incentives ensures local ownership and the long-term sustainability of private-sector initiatives that promote women’s inclusion.
During the first phase of this work, MSA mapped out the existing evidence on how women-inclusive investments affected financial outcomes for SMEs in LMICs. What types of women-inclusive investments were commonly practiced? What metrics were already commonly collected at these companies and how could they be gender-responsive? The review found that three categories of social inclusion investments already had evidence linking them to financial returns: safety and gender-based violence prevention, workplace culture and benefits, and talent, including hiring and retention strategies. The research also identified three key areas where evidence was distinctly lacking: women’s leadership, supply chain diversity, and targeting women consumers.
Based on the above evidence and interviews with SMEs in LMICs, the MSP team developed the Women-Inclusive Return on Investment (WI-ROI) Framework to support development practitioners and impact investors to better understand SMEs’ practices and incentives to accelerate women-inclusive growth from the firm perspective. The framework identifies four broad categories of high-potential business strategies to promote gender equality in SMEs: talent and leadership, workplace culture, consumers, and supply chains. Impact investors, development practitioners, and SMEs themselves can use the framework to identify key strategies to implement to enhance women’s empowerment that also align with firm incentives—a win-win.
The Case for Case Studies
In the next phase of this work, DAI, WDI, and MSA are partnering to take this work one step further and close these evidence gaps. Using the WI-ROI Framework as a foundation, the team is developing a series of case studies to validate and build evidence on the four business strategies outlined in the framework.
Working with SMEs in LMICs, these case studies will highlight promising models of women-inclusive investments and use the enterprise’s own financial data to measure relevant metrics and build return-on-investment (ROI) calculations to demonstrate the financial value of the investment. These cases will help other SMEs better understand how to effectively track these investment costs and returns, and support building the evidence base by other companies and PSE actors.
These case studies are a step in the right direction to build the evidence base for making women-inclusive investments with SMEs. They present an opportunity to learn more about the type of data companies currently collect that can be used to attribute returns on investment to women-inclusive activities. In order to demonstrate impact at scale, this data will need to be adapted and collected with many more firms. The goal is to be able to document the nuanced approaches required when working with different types of companies in unique places, and eventually, to understand which investments in gender equality are most effective, for women and for businesses of all sizes, all across the world.