Widening the corporate playing field

For financial professionals only

Gender diversity has never been a hotter topic, with many industry studies crediting female board representation with increased profitability. As part of our #AdviseHer campaign, we look at the ways investors can encourage that diversity elsewhere.

1. Gender diversity gives companies a head start

There is increasing evidence that gender diversity enhances corporate performance. A 2019 study by S&P found that for female appointments, the share price outperformed by 20% on average during the first two years versus if the new CEO were a man¹. And for new CFOs, female appointments saw share prices outperform by 8% and profitability outperform by 6% compared to companies appointing male CFOs. Credit Suisse found similar results: companies with at least 20% female management outperformed the average company, and outperformance was greater where women were at least 30% of management². McKinsey recently found that the least gender diverse companies were 19% more likely to underperform in terms of profitability, while the most gender diverse companies were 25% more likely to outperform³.

These studies all show a correlation between representation of senior women and company performance, even if it isn’t clear why. It seems likely that the positive impacts of women in senior management aren’t purely down to the actions of the individual. Rather, companies who appoint women to senior management may have a more open mindset, be more collaborative as a team, and adapt to change rather than keeping with the status quo. All of these attributes are positive for corporate decision-making, innovation and productivity.

2. Progress has been made, but there’s room for improvement

In the UK, the 30 percent club was founded by Dame Helena Morrisey in 2010 with a global mission to reach at least 30% representation of women on all boards and C-suites globally. Back in 2010, only 12% of FTSE 100 directors were women, and it’s encouraging that the 30% target was reached in October 2019.

However, there’s still more to do. While 80 of the FTSE 100 have achieved at least a third of their boards being women, 20 have not⁴ and there are two companies in the FTSE 350 with all-male boards. Women remain woefully underrepresented at the highest level: there are currently only six female CEOs in the FTSE 100 and eight in the FTSE 250. For true gender diversity, there needs to be more women leading companies.

Similar trends are observed overseas: the largest 200 global companies had 21% female directors in 2018⁵. Europe has led the way at 32%, with 25% for the Americas and only 7% for Asia.  Disappointingly, 39 (20%) of the companies had no female directors at all, 20 of which were listed in China.

3. Encouraging companies to up their game

There’s increasing awareness and evidence for the value that gender diversity brings to companies. The first step is representation of women and men – throughout the business and at CEO level. And this doesn’t stop at gender – companies also need to attract diverse talent across ethnicity, disability, sexual orientation and socioeconomic background. The next step is fully including and engaging all employees. Executive accountability is necessary to ensure equality in career progression opportunities and pay.

We believe in the value of diversity and we discuss this with fund managers as part of our due diligence process. We recognise that this is a journey and many fund managers are currently biased towards white, middle class males. However, we expect a thoughtful consideration of diversity, and steps for how the firm is improving their policies to hire and retain more diverse colleagues.

Investors who want to see more about diversity in their portfolio and encourage positive behaviours could ask their fund managers these 3 questions:

1. How diverse is the investment team, and how do they ensure the best talent is being hired?
2. How is diversity considered for the companies held in the fund?
3. Does the manager have examples where they have successfully promoted diversity either in their own firm or for an investee company? For example, gender pay gap reporting, flexible working policies, or linking executive compensation to diversity and inclusion metrics.

References

1. When Women Lead, Firms Win, October 2019, spglobal.com
2. Credit Suisse Gender 3000 report, October 2019,  credit-suisse.com
3. Diversity wins: how inclusion matters, May 2020, mckinsey.com
4. Hampton-Alexander Review, February 2020, ftsewomenleaders.com
5. 2018 CWDI Report: Women Board Directors of Fortune Global 200 Companies, 2018, globewomen.org

This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.