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Why the Lack of Women Leaders is a Problem for Businesses

Kauffman Foundation researcher Emily Fetsch looks at the lack of women leaders in the business, why it is problematic to the business world, and what can be done to fix it.

Fewer than one-third of businesses worldwide are owned or managed by women, a new study by the International Labor Organization (ILO) found. In addition, from the nearly 200 countries in the world, only three countries’ businesses have a majority of women managers: Jamaica (60 percent), Colombia (53 percent), and Saint Lucia (52 percent). This is despite the fact that more and more women are entering the workplace and seeking higher education globally.

Despite the lack of representation, studies highlight the importance of women leadership in business. Research has shown that increasing the number of women in senior management positions, as well as that women board members are associated with a company’s success. In the United States, only 43 percent of managers are women, and fewer than one-in-five (19 percent) corporate board members are women. Studies have shown that women in leadership positions help increase returns and payout ratios. Women are also primed to be leaders in entrepreneurship through educational experience. In 2011, women represented more than half of the nation’s Ph.D.’s and business school applicants.  In addition, women comprised more than 70 percent of last year’s valedictorians.

In light of the clear advantages businesses could realize with more women at the fore, why the continuing lack of parity?  One explanation is the lack of women-owned firms. According to A Rising Tide, by Susan Coleman and Kauffman Foundation senior fellow Alicia Robb, notes that in 2007, women-owned businesses accounted for 28 percent of all businesses and only 16 percent of all employer-owned businesses. Research has highlighted three challenges for women-owned firms: a lack of mentors, their view of success and failure, and a financing gap. Studies show women view failure and external advice differently than men. Women are more likely to identify lessons learned from their previous failures (44 percent) as extremely important to their success than lessons learned from their previous successes (37 percent). However, another study found that “women were more willing than men were to turn to external advisors (7.9 percent vs. 4.5 percent) to help them recover from failure experiences.” This distinction highlights the importance of mentorship for emerging women entrepreneurs.

The financing gap is another key challenge facing women entrepreneurs. Fundraising is a key area that separates men and women entrepreneurs. One key difference between men and women entrepreneurs is that men are able to secure more capital from external sources than women. For male entrepreneurs, 60 percent of startup funding was raised from outside sources, such as bank loans or angel investors, compared to 48 percent for women entrepreneurs. Women entrepreneurs are recipients of just 19 percent of angel funding and even less of venture capital funding.

It is strikingly clear that women entrepreneurs need greater access to outside capital. One emerging way to accomplish that lies in unconventional financing sources, like Kickstarter. Another approach is to seek out programs that help women-owned companies find resources, including financing, as they develop their companies. Two prominent examples of such programs include Astia and Springboard Enterprises.

Increasing the share of women in business leadership positions and in entrepreneurship has tangible rewards that benefit not just individual women, but also the businesses they are in. That means benefits for the employees, the board, and potentially society as a whole. It is wasteful not to take full advantage of the talent and value women offer in the business world. While a large majority of businesses are currently run by men, the percentage of women running businesses can be increased with fairly simple efforts, including increased gender diversity on boards, additional mentorship opportunities, and an expansion of programs geared towards external financing access for women entrepreneurs. That, at least, would be a good start.