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Early this month, France’s first minister, Elisabeth Borne, announced that French companies failing to enforce the country’s gender equality criteria would be denied access to public contracts. The news adds yet another layer to an already long list of incentives to boost women’s standing in the workplace. In recent years, research has increasingly shown that including women in a company’s top positions not only makes ethical sense, but also pays off from a business point of view. In the United Kingdom, for instance, a 2020 report showed that the presence of women on executive boards significantly improved the performance of the country’s firms, particularly when three or more females were appointed and when they also held executive director positions. 

Another study on banks in Europe, the Middle East, and Africa, found that entities with female chief executive officers invested more in sustainable environmental initiatives. And the former IMF chief, Christine Lagarde, in 2019, stated that closing the gender gap in employment could push up global GDP by 35 percent. Still yet, our latest paper, which is due to be published in the International Journal of Corporate Governance in the coming months, confirms this trend. Surveying data from 228 non-financial French listed companies from 2018 to 2021, we found evidence that companies that scored higher on the country’s “Gender Equality Index” also fared better from a markets perspective. (Presumably, there are some French fashion entities in the mix here given that the likes of LVMH, Kering, and Hermès, for instance, are all publicly listed companies.)

The French Equality Index & Positive Change

To boost women’s status in the workplace, the French government passed a law in September 2018 that mandates that companies with at least 50 employees must communicate information on gender equality. Taking its name from the then-Labour minister Muriel Pénicaud, the Pénicaud index – also known as the “equality index” – obliges these companies to publish data on: (1) The difference in total remuneration between women and men weighted by grade and age group; (2) the difference in the rates of salary increases between men and women; (3) the difference in the promotion rates between men and women; (4) salary increases for employees returning from maternity leave; and (5) the gender balance of the top 10 highest-paid employees.

The availability of such information implies that French companies’ track record on gender equality is subject to public scrutiny, which can in turn affect investor confidence. On the one hand, the results of our research are encouraging. The average Pénicaud Index for the surveyed firm is 84 points out of 100. In addition, we note that the equality index has increased over time, which is evidence that firms are willing to continuously improve female conditions. From this perspective, the effect of this law seems to be going in line with the government’s expectations. In her interview with Elle on March 1, Borne effectively stressed the equality index’s main objective was not to punish firms, but to provide them with an incentive to change their policies and behaviors toward greater gender equality in the workplace.

Yet, we also believe there is significant room for improvement. If we look at the latest report, for example, we find only 2 percent of firms scored the maximum mark and a mere 61 percent provided their data on time. All the while, 2,354 firms obtained zero on the score on maternity leave.

Against this background, it is worth noting that there is some low-hanging fruit that companies can easily seize upon to boost their gender score. Take the one common blind spot that we observed among firms performing just below the maximum score of 100 points: Female representation in the 10 highest-paid employees. Global consultancy group Keyrus SA scored 90 out of 100 in 2021, losing 5 out of 10 points in this area. That was also the case that year with the country’s energy provider, EDF, which clinched the maximum score in four out of the five categories included in the equality index, but failed to have a single woman to show in its 10 highest-paid employees. Women were also nowhere to be found in the highest earners of the country’s most popular TV channel, TF1, causing it to stagnate at 85 out of 100.

These figures make clear that, notwithstanding companies’ efforts to boost gender equality in the workplace, corporate leadership remains the preserve of a small male elite. This is also the conclusion of a recent report by the European Women on Boards Association, which shows that while boards of French firms lead the European Union in terms of female representation (45 percent on average of board members in France are females), only 15 percent of firms can boast female Chief Financial Officer and only 8 percent, a female Chief Executive Officer.

This is too bad, as firms prioritizing gender equality tend to accrue significant financial benefits from it. In fact, our research finds a positive association between companies with higher values for their equality index and their market valuation and return on equity. The graph reports a simplified illustration about the association between one of the measures of market performance used in our research, Tobin’s Q, and the equality index of French firms. The trend line in black highlights the positive association between these two variables.

Equality index chart

In addition, our analyses prove that independent auditors associated a lower audit risk (i.e., the risk that the annual report contains material errors) to companies with greater gender equality performance.

Ultimately, our results should encourage firms to give women the keys of companies’ C-suite, which remain stubbornly male-oriented even though the evidence indicates this is not in companies’ best interest. We also hope that the agendas of global legislators and regulatory bodies keep promoting and enforcing gender equality across sectors.

Domenico Campa is an Associate Professor of Accounting at International University of Monaco.

Mara Cameran is a Researcher in financial accounting at Bocconi University. (This article was initially published by The Conversation.)