It is largely accepted that gender diversity in business equates to good corporate governance – but we believe that for investors, it is fast becoming a corporate requirement. Here’s why.
Last summer, a woman named Diane Morefield was hired to join a US car auction company as its Chief Financial Officer. This move had much greater significance than it might first appear – as Ms Morefield’s appointment meant that there were no longer any companies in the S&P 500 Index with all-male boards.
This year, investment bank Goldman Sachs announced it would no longer work on a company’s initial public offering unless it has at least one woman – or non-white person – on its board.
Several studies have demonstrated a link between greater corporate diversity and performance
These are just two examples of how corporate diversity is – finally – closer to becoming the norm, rather than simply a goal. And rather than being motivated simply by altruism, it makes good business sense, as several studies have demonstrated a link between greater corporate diversity and performance.
- Credit Suisse compared the performance of companies with less than 15% of female representation in senior management, with those above 20%, as well as above 30%, over most of the past decade. It found that companies with above-average gender diversity performed consistently better between January 2010 and May 2019 than both its own Gender 3000 universe – and the MSCI All-Country World Index.
- Research from the Peterson Institute for International Economics supports the argument that diversity at board level, or among the broader workforce, is positive from a financial perspective. It concluded that a company with no female leaders, increasing to 30% female representation at the senior level, is associated with a 15% increase in net revenues.
- In addition, an analysis from McKinsey highlights that companies in the top-quartile for gender diversity in their executive teams are 21% more likely to outperform on profitability. More diverse companies also tend to have higher dividend yields and exhibit slightly lower volatility and exposure to risk – potentially good news for investors.
Boardroom diversity also improves environmental, social and governance (ESG) standards, which in turn is linked to better financial performance, according to the International Finance Corporation.
Attitudes are changing – but there is still some way to go
In today’s world, there is arguably a greater emphasis than ever before on ESG issues within the business world. Female empowerment has been in the spotlight in the wake of the #metoo movement, which has made the concept of male dominance increasingly unacceptable.
Policymakers are also stepping up their focus on equality. Christine Lagarde, the first woman to head first the International Monetary Fund and now the European Central Bank, is expected to address the gender imbalance in central banks while also delivering a wide-ranging strategic review.
Meanwhile Ursula van der Leyen, the new President of the European Commission – also the first woman to hold that office – is spearheading a new policy framework to tackle gender equality in the European Union and beyond.
Attitudes are changing. But despite the change in the board makeup of S&P 500 firms as mentioned previously, there is still not enough diversity within business.
There remains a glass ceiling, with a global deficit of women in senior roles in business. According to McKinsey, at the senior executive level, or ‘c-suite’, the representation of women has increased since 2015 but still stands at just 21%.
At the same time, there is also a ‘sticky floor’, keeping women stuck at lower levels. For every 100 men promoted to being a manager, only 79 women are promoted to the same level. This can’t be explained simply by attrition or lower ambition.
Women make up 45% of the working population but less than 5% of chief executives in the S&P 500 and S&P Europe – and even in sectors with high proportion of women, we still see mostly men at the top. In the financial sector, women make up 51% of workforce but 35% of senior managers and 16% of the executive. In health care meanwhile, women make up 47% of the workforce but 33% of managers and 14% of executives.
And there is still a gender pay gap – which globally could take almost 100 years to close. This is partly linked to fewer numbers of women being promoted, and the higher burden of unpaid housework or caring for families – but there is also an unexplained gap. A study by Citigroup shows that if female labour force participation, hours worked and productivity were the same levels as for men, this would add 6% to global GDP over the next two decades.
How can investors incorporate gender diversity into their investment mindset?
By putting more emphasis on diversity and closing the gender pay gap investors can play a part in moving it from good corporate practice to a corporate requirement. So how can investors incorporate gender diversity into their investment mindset?
We would encourage investors to look at basic key performance indicators including the percentage of female executives, women on the board and women in management in a company. Beyond absolute numbers, investors should look at ratios – a particularly telling one is the ratio of female managers to female employees. Investors should also put the data in its context and pay attention to peer comparisons by industry, or within a country or region. Certain industries are ahead of the pack, in some cases simply because historically women have gravitated towards those industries, but no-one should rest on their laurels and what we should focus on is rate of progress over time, rather than just attaining a specific quota.
Companies are increasingly disclosing more data around new hires, promotions, mentorship, gender pay gap, and parental leave offered – which we welcome. Investors can ask for this data if it is not provided.
It is also important to look at the company’s strategy, their ambition – including any specific targets for gender inclusion – and their policies around hiring and appraisals. There are also other key indicators that can help investors build a picture of a company’s commitment to diversity, such as whether they have a head of diversity and inclusion, and recognition such as an EDGE certification – a global standard for gender equality – or appearing in external rankings such as Equileap or Bloomberg’s Gender Equality Index.
Companies can also go one step further through corporate and social responsibility activities, such as supporting initiatives around female education and careers, or tackling gender issues idiosyncratic to their industry, for example abstaining from gender stereotyping in the media and advertising.
Gender equality and diversity are improving, but there is still some way to go. Pressure and increased scrutiny from investors will help gender balance be a corporate requirement in the future – which we hope would be a win for everyone, from companies to investors and of course the women themselves.
 CNBC, There is now a woman board member at every S&P 500 company, 25 July 2019
 Reuters, Goldman Sachs to companies: Hire at least one woman director if you want to go public, 23 January 2020
 Credit Suisse Research Institute, The CS Gender 3000 in 2019: The changing face of companies, October 2019
 Source: Peterson Institute for International Economics, 2016
 Women in Business Leadership Boost ESG Performance, International Finance Corporation, 2018
 S&P Capital IQ, Exane BNP Paribas estimates / Morningstar
 Morgan Stanley HERS report August 2019
 Citigroup, Women in the Economy II – How Implementing a Women’s Empowerment Agenda Can Shape the Global Economy, November 2017