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Jennifer Reynolds is the chief executive officer of Women Corporate Directors. Her 25-year career in the financial services industry includes senior roles in investment banking, venture capital and global risk management and corporate director roles in the banking, insurance and asset management sectors.

According to the Organization for Economic Co-operation and Development, Canada’s wage gap sits at 16.7 per cent – the seventh worst of 38 OECD countries. While policy initiatives to correct that gap are critically important, the real work required to reduce it is more complex than equalizing pay across job types and seniority.

According to a McKinsey estimate, 70 per cent of the pay gap within organizations is attributable to gender differences in job levels. Women are exceedingly underrepresented in the higher paying, senior roles in the economy. Even in industries where women have made up more than half of the entry-level talent for decades (for example, law, accounting and retail), women remain notably missing from those senior leadership teams.

The fact that women are present in abundance at junior levels, yet largely absent from senior-level roles, would seem to indicate that, on average, women just don’t perform well enough to advance into management and executive roles. However, a recent MIT study found women, on average, have higher performance ratings than man. Where they underperformed was on their leadership “potential” ratings.

Even when women exceeded expectations, they still did not get the benefit of the doubt. They continued to receive lower potential scores despite demonstrating through their performance that the previous period’s potential score was inaccurate. This effect gets stronger for more senior positions: The study points out that women get progressively lower potential scores relative to their actual future performance as they rise up the corporate ladder.

I found this research to be quite poignant, as there is already a popular narrative that there is a tendency to promote men based on potential and women based on past achievements. But even past achievements may not be enough to move the dial. By and large, women are simply seen to have less “potential” than men for leadership roles.

Take the capital markets to be a proxy for the “potential” gap. Even when women do make it into leadership roles, their potential continues to be underestimated. A recent Mergermarket study that reviewed more than 11,000 merger and acquisition deals in 2020 found stock prices generally went down after deals announced by acquirer companies led by women.

Deals conducted by female chief executive officers were viewed less favourably by traders than those conducted by their male counterparts. Price returns were 1.5 percentage points lower for deals where the acquirer had a female CEO compared to those where the acquirer was led by a male CEO post-announcement.

Yet the research proved that the negative perception of female-led deals is unjustified. Diverse boards and female CEOs produce better results post-deal than their male counterparts across several key indicators such as share price performance, return on equity, EBIT/sales and EBITDA/sales.

During the pandemic, the performance gap between female CEOs and gender-diverse boards, and male CEOs and less gender-diverse boards, widened in the former’s favour. Acquirer companies led by female CEOs saw their share prices perform better than those led by male CEOs one year post-transaction completion. The same held true for acquirer companies with more female representation on boards compared to those with fewer female board members.

This potential gap results in women being assessed as a riskier bet for leadership, yet data suggests the exact opposite is true. Not surprisingly, being shut out of more senior roles also keeps women from earning as much as men. To narrow the wage gap, we need to narrow the “potential” gap.

This column is part of Globe Careers’ Leadership Lab series, where executives and experts share their views and advice about the world of work. Find all Leadership Lab stories at and guidelines for how to contribute to the column here.

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