Women Matter: An Asian Perspective

Corporate Asia is failing to tap its huge pool of talented women—an oversight that could impact companies’ growth aspirations given the acute talent shortage in the region, according to a new report by global management consultancy McKinsey & Company.

Some 50 percent of graduates in Asia are women, but only a fraction of that number make it to middle management, let alone the top, the study shows. On average, women account for 6 percent of seats on corporate boards, and 8 percent of those on executive committees. That is strikingly low compared with Europe and the United States, where the comparative figures—though still low—are 17 percent and 10 percent, and 15 percent and 14 percent respectively.

The report, Women Matter: An Asian Perspective, is the first in-depth study that McKinsey has published on women in corporate Asia. We took 745 companies from the local stock indices of ten Asian markets and looked at the gender composition of their boards and executive committees. We also surveyed some 1,500 senior managers in those markets. The study finds that, despite the low representation of women at senior levels, gender diversity is not yet high on the strategic agenda for most Asian companies, and few senior managers believe this will change anytime soon.

Since 2007, McKinsey & Company has been making the business case for raising the number of women in senior management positions. McKinsey & Company’s global research on the role of women in corporations has long established the correlation between participation of women in executive teams and the financial performance of companies, highlighting the critical importance of gender diversity for business.

“Given tight labor markets and intense competition for talent across Asia, there is a strong business imperative for Asian companies to better tap the female talent pool. That means gender diversity needs to become a corporate priority,” said Dr Claudia Sussmuth-Dyckerhoff , co-author of the report and a Director in McKinsey’s Shanghai Office.

Under-representation at every level

The McKinsey report suggests that the narrow representation of women at the top of the corporate hierarchy is not the only problem. If more women are to reach senior positions, they have to be present in the pipeline that feeds those positions. Yet in some markets, relatively few women even enter the pipeline, as the rates of female participation in the labor force are low. As a result, these markets are forgoing a significant growth dividend. In India, for example, the female labor participation rate is 35 percent—one of the lowest in the world. In Taiwan and Malaysia it is also less than 50 percent. Raising the participation rates of women in those countries would be a significant boost to growth in the long run.

“Even when women do enter the corporate world, they often fail to progress very far, either getting stuck in the pipeline early in their careers or deciding to leave at middle management. China, for example, has one of the world’s highest female labor participation rates, but still only 8 percent of corporate board members and 9 percent of executive committee members are women,” said Ms Jin Wang, co-author of the report and Partner in McKinsey’s Shanghai Office.

Given that women now account for half of Asia’s graduate cohort, that amounts to a considerable waste of talent. In its latest research, the McKinsey Global Institute has projected that by 2020 the likely high skill gap in China will be 23 million, while in India the medium skill gap could be in the order of 13 million. A separate McKinsey survey in China recently revealed that 44% of executives in 60 Chinese companies felt that lack of talent was the biggest barrier to their companies’ global ambitions. Bringing more women into the workforce would help bridge those skill gaps.

“There is a clear business case for enhancing women’s participation rates at all levels of the work force, and particularly at senior management levels. As Asian companies compete in a globalized market place, companies who don’t work to improve women’s participation are surrendering two important sources of competitive advantage: having the best talent in an age of talent scarcity, and the particular performance benefits that women in leadership positions bring to an organization,” said Ms Wang.

Gender diversity not a priority

Despite the business case for recruiting and developing more women, 70 percent of Asian executives surveyed by McKinsey said greater gender diversity was not a strategic priority for their companies. In Europe, the figure was 47 percent in 2011. In addition, less than half —some 40 percent—expected that their companies would step up efforts to improve gender diversity in the next five years.

These findings suggest that the status quo is not about to alter in the short term unless there is radical change. A minority of executives see the need for change. But the majority are still not giving the issue much attention. Moreover, given how few women have reached the top, the question arises of whether change is happening even in those markets and companies where there appears to be wider awareness of the importance of gender diversity.

What holds women back

According to the survey, 40 percent of business leaders ranked the “double burden” of women in Asia—holding a job while looking after their families—as the greatest obstacle preventing women from moving into senior roles in the corporate sector. In India, Korea, and Japan, almost half believed that family commitments were the primary reason for women leaving their jobs voluntarily.

The survey respondents nominated lack of pro-family public policies or support services (e.g., child care) as the third largest obstacle to increasing gender diversity in the work place. This contrasts with the situation in Europe, where McKinsey’s latest research suggests this is not perceived as a major barrier.

The formula for change

Progress towards higher female participation at senior levels of corporate Asia is likely to require action by governments, the wider business community, and individual companies. This report focuses on what companies can do.

“Our research in the United States and Europe has shown that to shift the needle on gender diversity, companies need to have an ecosystem of supporting measures including management commitment; women’s development programs, and a set of “enablers” that help ease women’s progress through the company (such as human resources policies and processes, and indicators that track inequalities and improvements). That is also the case in Asia,” said Dr Sussmuth-Dyckerhoff.

However, the McKinsey Asia survey showed that only 12 percent of companies have in place a balanced gender diversity program to promote women’s participation at more senior levels. And importantly, very few appeared to have strong commitment from the CEO and other senior executives. Only 15 percent of survey respondents said that the CEO and executive teams in their companies visibly monitored progress in gender diversity programs, for example.

Our research has shown that the impact of any gender diversity initiatives will be limited unless the CEO drives the changes. His or her task will be to preach the business case for recruiting more women into senior positions, to lead by example by hiring more women and personally sponsoring them, to set targets to ensure the organization starts developing more women of the right caliber, and to take personal responsibility for tracking progress toward those targets.

“Like any major change program, securing greater participation by women at senior levels of a company requires CEO commitment and recognition throughout the company of the importance of gender diversity and a commitment to actively pursuing the goal“, said Dr Sussmuth-Dyckerhoff.

“Asian companies and economies across the board stand to benefit enormously from better tapping the female talent pool. Getting the issue of gender diversity on the corporate agenda across the region is simply good business.”

Download the full report here.