A widely documented body of research has demonstrated that companies with higher levels of women in leadership (WIL) have superior performance in several areas, including higher returns on capital, better productivity, and higher stock price performance. During the initial years after the financial crisis of 2008-9, financial and economic research established the positive performance impact of female participation at the board and senior management levels of large corporations. Since then, a number of studies have consistently shown the financial and performance benefits of gender diversity in corporate leadership – and have demonstrated that companies who lag on diverse leadership also lag in performance. The following is an overview of key studies in this area.
Prior to the global financial crisis, Catalyst, a leader in promoting women’s advancement in the workplace, issued a 2007 study showing that Fortune 500 companies with female board members outperformed those with none on equity (ROE), return on sales, and return on invested capital. Furthermore, the outperformance was notably higher for those companies with at least three women on their boards. In an ongoing challenge for corporations to avoid a “one and done” approach, three female board members became the magic number for companies to boost performance.
After the crisis, much attention was focused on deeper assessments of company performance and the workings of Wall Street. A 2012 Credit Suisse Research Institute report demonstrated that companies with women directors performed better than those with no women directors on a range of criteria and turned in better share price performance. In 2013, Pax World Investments, a front-runner in sustainable investing, asserted that these gender balance performance results pointed toward investing in women as an asset class. A company’s gender balance status – its WIL metrics – became investable.
McKinsey Global Institute first published its groundbreaking Power of Parity report in 2015. This study of 15 gender equality indicators in 95 countries, both developing and developed, found high levels of inequality in a range of metrics centered around equality at work, economic opportunity, legal protection, and physical security. The comprehensive analysis concluded that a “full potential” scenario, where women participate in the economy identically to men, would add $28 trill to annual global GDP by 2025. A “best-in-region” scenario in which all countries match the improvement of the best-performing country in their region, would add $12 trillion. Introducing its Gender Parity Score and setting equality at 1, the study found that the lowest scoring region was ex-India South Asia, at 0.44, with North America/Oceania scoring the highest, at 0.74. The following areas were identified as those areas where effective progress would shift a majority of women closer to parity.
|Global Impact Zones||Regional Impact Zones|
|Blocked economic potential||Low labor force participation in quality jobs|
|Time spent in unpaid care work*||Low maternal and reproductive health|
|Fewer legal rights*||Unequal education levels*|
|Political underrepresentation||Financial and digital exclusion*|
|Violence against women||Female child vulnerability|
*Progress in these areas would have strongest impact on advancing equality.
Six categories of potential interventions were evaluated: financial incentives and support; technology; the creation of economic opportunity; capability building; advocacy and attitudes; and laws and policies. The report found that higher equality in work required equality in society, including in attitudes and beliefs about the roles of women.
Against this backdrop of how equality could impact global GDP, subsequent research continued to confirm the performance benefits of higher WIL metrics. A 2016 report by Credit Suisse, in a follow-up to its earlier studies, not only confirmed the firm’s previous WIL results, but demonstrated that “the higher the percentage of women in top management, the greater the excess returns for shareholders”.
A 2018 study by Bank of America Merrill Lynch showed that companies in its coverage universe with higher levels of women on their boards from 2005-2016 had higher one-year ROEs. In addition, median one-year ROE was also higher for S&P 500 companies with at least 25% female executives during 2010-16.
In a joint undertaking with LeanIn.org, a workplace research firm, in 2015 McKinsey began publishing an annual Women in the Workplace review. The latest results from 2019 indicate that women remain underrepresented at all corporate levels in the U.S. Some progress has been made in the C-suite, although not for minority women, and parity is nowhere in sight. But a glaring gap in the first level of management, a “broken rung” on the corporate ladder, has revealed itself. Only 72 women overall, and only 58 black women, are promoted or hired to manager roles for every 100 men, and the number of women decreases at every additional level upward. The research shows that fixing this broken rung would result in one million more women in U.S. corporate management roles.
In September 2019, Morgan Stanley shared its internal findings that gender diverse companies outperformed their regional benchmarks during the past eight years, while controlling for company size, dividend yield, profitability and risk. Outperformance was strongest in North American and ex-Japan Asia. Another late-2019 study by S&P Global Market Intelligence showed that firms who appoint a female CFO obtain higher profits and share price returns than their male predecessors over their first two years.
In November 2019, a Harvard Business Review paper on gender diversity and 1998-2011 stock prices drew a collective sigh from gender lens analysts. The study found that shares declined, to an undisclosed degree, for two years following the appointment of a woman to a board for over 1,600 public companies. The main reason cited for the temporary price dip was investor bias, which was not news to anyone watching the stubborn WIL data. In a reply to the study, Ellevest’s Sallie Krawcheck pointed out the importance of longer-term results, and also noted that stock price is not the only financial measure of diversity benefits.
The Investments and Wealth Institute (IWI) published a summary of the latest academic literature on the benefits of higher levels of gender diversity. Among the analyses highlighted in the review, one 2018 study updated the widely-cited McKinsey analysis from 2015, demonstrating that 1000 companies in 12 countries performed better on profitability and value creation with higher levels of gender diversity in leadership. Another 2018 study showed that S&P 500 companies with higher leadership diversity had higher ROE. In a confirmation of a threshold established in previous work, one study showed that Italian companies performed better on a range of metrics following Italy’s mandate for at least three women on boards. Additional findings included that FTSE 100 companies with more women on their boards had higher firm value, and that Chinese firms with female chairs performed better between 2000-14.
The IWI literature review also highlighted WIL advantages on a broader scale. These included the macroeconomic benefits of gender diversity, the legal costs for companies who fail to halt discrimination, and the innovation and sustainability benefits of gender diversity. In May 2020, McKinsey published its third in a research series on the benefits of diversity, Diversity Wins: How Inclusion Matters. The analysis, comparing 2014 and 2017 results, showed that companies in the top quartile of management gender diversity were 25% more likely to demonstrate higher-than-average profitability than those in the last quartile, an increase over each two previous periods. This indicates a significant performance gap between gender diversity leaders and “laggards”. In examining ethnic diversity, the results showed an even stronger outperformance by the top quartile. However, progress was very slow for women and minorities in upper management within the U.S. and U.K. data set, particularly for minorities. In addition to confirming the outperformance benefits of greater diversity, the study highlighted the growing likelihood of underperformance for companies in the lowest gender and ethnic diversity quartiles. Diversity wins and lagging behind has costs.
Research has expanded into benefits of gender-diverse leadership beyond performance. A University of Toronto study of more than 6,000 public U.S. companies found that gender diverse boards outperformed those where boards had zero or one woman. Furthermore, in examining financial reporting records from 2000 to 2010, those companies with gender-diverse boards experienced fewer reporting restatements and fraud incidents.
A 2020 analysis by the Wall Street Journal found that gender-diverse leadership is connected to effectiveness. The study grouped 640 companies into quartiles based on the Drucker Institute’s statistical model of five measures of effectiveness. In looking at leadership diversity for each quartile, the study found the top quartile had the highest percentage of women in leadership. Those percentages declined in order of effectiveness quartile. The analysis demonstrates that corporations will suffer in wide-ranging ways if women’s pandemic job losses become permanent.
A “one and done” approach also hinders women and minorities and prevents companies from seeing diversity benefits. Research has demonstrated that the presence of women corporate leaders does not lead to an increase in the same, and does not lead to successors being women. Rather, a woman leader’s performance influences future presence of other women. This can be due to several biases that don’t face male candidates, such as downplaying positive contributions by a woman leader and generalizing negative results.
In its annual survey of corporate board directors, PwC found that a clear majority of directors agree that diversity enhances board and company performance. However, women directors reported that a commitment to diversity is lacking at the board leadership and CEO levels. This drives slow progress, as women on S&P 500 boards have moved slowly up from 16% in 2009 to 26% in 2019. Investors have a growing focus on overall corporate diversity, equity, and inclusion (DEI), including women in leadership, but stakeholder perceptions of DEI reveal gaps.
Accenture’s 2020 research on the benefits of D&I, including equal pay, promotion, and benefits, shows that the gap between management and employee perception of D&I hampers profits for U.S. companies by US$3.7 trillion.
Impact of the Pandemic
Appointments of female CEOs decreased notably during the pandemic, adding to the unequal effects of the pandemic on women in the global economy. A recent WEF analysis lamented that women remain only 5% of the CEOs of major companies. According to the analysis, women CEO appointments have declined since the start of the pandemic primarily because hiring has focused on CEO experience, a strategy that favors men. At 15%, Ireland ranks highest on female CEOs, while Brazil ranks last at 0%.
In 2021 we highlighted the following studies and datasets in our quarterly reviews of gender lens investing and women in the global economy.
Several WIL studies added to the research during the first quarter of 2021. Moody’s Investors Service examined gender diverse leadership and ratings at over 1,100 U.S. and Canadian companies and 540 European companies. The research showed that firms with higher WIL also had higher credit ratings. While the analysis did not demonstrate causation, Moody’s sees gender-diverse leadership as a factor contributing to sound corporate governance. The report highlighted the economic benefits of greater workforce participation by women. Moody’s also asserted that heightened investor focus on corporate gender equality is likely to increase.
The Harvard Business Review published a summary of comprehensive research on the benefits of workplace and leadership gender diversity. Core findings on the benefits of stronger diversity metrics include better decision-making, a greater focus on innovation, improved talent retention, lower rates of sexual harassment, and a foundation for long-term gender equity.
With a growing focus on broad-based corporate diversity, equity, and inclusion (DEI), research on the benefits of diverse leadership is making a welcome push into racial diversity. A 2020 report by BoardReady found that S&P 500 companies with higher levels of board gender diversity have performed better during the pandemic-related downturn. The report also found that boards with higher levels of racial diversity turned in superior performance. However, the analysis was limited by the low number of S&P 500 boards with over 20% non-white directors, which is less than 20% of all the constituents.
Credit Suisse released CS Gender 3000 in 2021: Broadening the diversity discussion (CS 3000). This is the latest in the biannual CS Gender 3000 report series, a cornerstone global study of women in corporate management. The dataset is comprised of more than 3,000 global companies in the Credit Suisse research universe. The report found that women’s representation on boards is increasing at a faster pace than within management and executive ranks, a dynamic that we have often highlighted. As with previous versions, the report examined the “diversity premium”. While not demonstrating a causal relationship, the data continue to point to an observed premium for higher levels of gender diversity in leadership on several measures, including better EBITDA margins through time and stronger share price performance.
A prominent researcher on diverse leadership, Julie Gorte authored Impax Asset Management’s latest research on board diversity, The Business Case for Diversity: 2021 Update. The report’s comprehensive literature review covered the impact of gender and other measures of board diversity on financial performance, corporate culture, innovation, environmental impact, and several other areas. It found that positive and no-correlation studies on the impact of diversity outnumber those finding negative correlations. A number of studies demonstrate the positive impact of gender, racial, ethnic, and other diversity metrics on corporate resiliency, strides in innovation, and reduced risk for losses associated with adverse behaviors by senior management.
In terms of financial performance, studies have arrived at findings similar to the earlier examinations of the benefits of gender-diverse leadership. A 2020 study of S&P 500 boards over eleven years found that gender diversity was associated with a higher return on assets, and a 2021 Bloomberg study of the Russell 1000 found that board gender diversity was positively associated with a higher ROE. The review also looked at the relationship between board gender diversity and environmental policies and impact. Notably, a 2021 MSCI report found that gender-diverse ACWI Index companies had better records on reducing carbon emissions. A U.S. study found that gender-diverse boards were more likely to pursue renewable energy, which boosted financial performance. (Note: Impax Asset Management is the manager of the Pax Ellevate Women’s Leadership Fund.)
According to data from BoardReady, companies with more that 30% female boards turned in year-over-year revenue growth at a higher percentage than companies with less than 20% women on their boards. Companies with over 30% female board representation outperformed their less diverse counterparts in 11 out of top 15 of the S&P 500 industries. Revenue growth was stronger for companies with at least 30% non-White boards.
The latest Women in the Workplace study by McKinsey and LeanIn.org showed that women have made strides in most levels of the workplace, but a broken rung at the first management level persists. Only 86 women are promoted to this level for every 100 men. In one sign of progress, this metric was equal for women of color as well as White women. Despite gains, White men still comprise 62% of the C-suite.
Deloitte Insights released its latest report on women in financial services,Within Reach 2021, the fifth installment in the series. With the setbacks of the pandemic, the 2021 report reiterated the goals of the 2019 report: gender equity in hiring and promotion, tapping into the returnee talent pool, leveraging the multiplier effect of women in the C-suite, and ensuring the visibility of women – something which has become even more important during the workplace impact of the pandemic. The report found that the proportion of women in financial services leadership roles has only risen from 22% to 24% since 2019. Without sustained efforts and commitments to purpose-driven diversity, gaps between women in the C-suite and senior leadership (one to three levels below top management) are slated to widen by 2030 due to the effects of the last two years. Among other measures, the report calls on institutional investors to allocate funds to more diverse asset managers.
Morningstar released a report on the performance benefits of gender-diverse leadership. Over a 3-year period, Morningstar found that shares of companies in the U.K., U.S. and Canada with more female executives and directors outperformed. Those with more than 50% female executives and directors averaged a 3-year annualized share price return of 13.46%, above the broad market return of 4.78%.
Equilar released data showing that 26% of Russell 3000 directorships are held by women. The research firm’s latest board diversity data indicates that the rate of female board appointments has increased. However, less than 3% of Russell 3000 constituent companies have achieved board gender parity. There is much ground yet to cover.
Although the rate of progress for women in corporate leadership remains slow, FTSE 350 companies with at least one director of color doubled from 21% in 2020 to 45% in 2021. Building on the U.K.’s 2017 Parker Review Committee challenge, the Confederation of British Industry (CBI) launched a Change the Race Ratio campaign in October 2020, with the first annual results now in. The campaign calls for all FTSE 100 companies to have at least one black, Asian, or minority ethnic (BAME) board member by year-end 2021, while smaller FTSE250 companies should achieve this by 2024. CBI emphasized the research supporting the enhanced business performance of companies with diverse leadership. In other FTSE board diversity progress, women now make up 51% of non-executive director positions in the 150 largest FTSE companies. However, nearly 90% of executive director positions are held by men, who still dominate executive committees and management roles.
An important development which should impact women in U.S. public and private sector leadership: The White House announced the first-ever National Strategy on Gender Equity and Equality. The strategy, which is designed to include all government agencies, is intended as a long-term roadmap for the U.S. to close persistent gender gaps. The principles of the strategy are designed to promote equity and equality for all genders, with acknowledgment of longstanding systemic discrimination and barriers affecting women and girls. In addition, the strategy seeks to address the impact of intersectional discrimination on the basis of gender, race, ethnicity, sexual orientation, religion, socioeconomic status, and other factors. With a view toward advancing equity and equality in the U.S. and globally, the strategy is centered on ten interconnected priority areas:
- improving economic security and accelerating economic growth;
- eliminating gender-based violence;
- protecting, improving, and expanding access to health care, including sexual and reproductive health care;
- ensuring equal opportunity and equity in education;
- advancing gender equity and fairness in the justice and immigration systems;
- advancing human rights and gender equality under the law;
- elevating gender equality in security and humanitarian relief;
- promoting gender equity in mitigating and responding to climate change;
- closing gender gaps in science, technology, engineering, and mathematics (STEM) fields; and
- advancing full participation in democracy, representation, and leadership.
In 2022 we highlighted the following studies and datasets in our quarterly reviews of gender lens investing and women in the global economy.
BNY Mellon Investment Management published a far-reaching survey on women and investing, The Pathway to Inclusive Investment: How Increasing Women’s Participation Can Change the World. The survey report examined the gender gap in investing and highlighted the benefits of closing the gap, which would drive more than US$3 trillion in additional assets under management from individuals. The asset management industry is failing to reach women and neglecting to address women’s investment goals. According to the survey, women are highly interested in investments with purpose, including sustainable investing. Most women investors are currently invested in companies that align with their personal values, and the survey also clearly indicated that more women would invest – or increase their investments – if a fund or company has a beneficial purpose. Women want financial returns and positive impact from their investments. The report found that the asset management industry requires more gender equality in order to attract more investments by women. (We discussed asset management gender gaps in our Q3 2021 Review.) A majority of firms stated that their investment products are primarily aimed at male customers. A multi-tiered approach within the industry is needed to address the gender investing gap and raise individual-investor assets under management, particularly assets directed at sustainable and impact investing.
In its annual report, Women, Business, and the Law 2022, the World Bank provided updates on country scores around eight legal pillars of gender equality. These include mobility, workplace, pay, entrepreneurship, and assets. The average country score was 76.5, up only slightly from the previous issue. The number of countries with a perfect score increased from 10 to 12. See this list and the top scorers on other global rankings of gender equality here.
PwC issued Women in Work Index 2022, its tenth annual report on women in the workplace within the 33 Organization for Economic Cooperation and Development (OECD) countries.14 The report and rankings assess five measures of women’s employment and pay gaps by country. Progress for women in the workplace was set back by the gender unequal impact of the pandemic on women’s employment. The report once again found that OECD GDP would increase a substantial US$6 trillion if women’s employment rose to match Sweden, the highest scorer on the metric. Closing the gender pay gap would increase earnings by US$2 trillion. Women raising children and non-white women were found to have the biggest employment gaps, which worsened considerably during the pandemic. The analysis indicates that a transition to net zero will increase jobs, and the report asserts that women must be included equally in those green economy opportunities by targeted intervention.
Equileap is a global leader in corporate gender data and metrics, including the datasets used to construct the suite of Solactive Equileap gender lens equity indexes. Equileap released the 2022 edition of its Gender Equality and Global Report & Ranking during the quarter. The report ranks publicly listed companies on 19 comprehensive gender equality criteria, including representation at all levels of the workforce and board, pay gap and transparency, workforce benefits, and anti-sexual harassment policies. This year the global dataset included approximately 3,900 companies with 102 million employees. Persistent gaps remain, with women’s representation shrinking at each higher level of management. Female board representation was 26%, whereas C-suite representation remained stubbornly low, with on 5% of the companies having a female CEO. Less than 1% of the companies have closed their gender pay gap, with only 17% reporting pay data. Encouragingly, over half the companies reported having an anti-sexual harassment policy. The average score increased to 66% from 64% in 2021. Europe was again the strongest region, as France, Spain, Italy, the U.K., and Sweden topped the country rankings.
Deloitte’s 2022 Women in the Boardroom report found that only 20% of board positions are held by women globally. The report indicated that progress is still very slow, but a growing number of countries are instituting board diversity mandates, driving improvements in the pace of board representation. Notably, the report showed that the most diverse boards are at companies with a female CEO or board chair. Women in Business Collaborative and 50/50 Women on Boards summarized advances for women on boards in the Russell 3000 Index, where female representation grew from 24% in 2020 to 27% in 2021. Black women turned in the strongest growth for the year, but they still only hold 2.7% of Russell 3000 board seats. Hispanic women comprised only 5.6% of appointments in the dataset, while Hispanic men lagged with only 3.8%. Asian and Indigenous women are acutely underrepresented.
After nearly three years of forward progress, S&P 500 companies experienced a slight net loss in women on boards in June. With female representation now at 31.7%, a faster pace of progress is needed to achieve and maintain 50% representation. Conversely, STOXX Europe 600 constituents registered a push forward in board diversity during the quarter, with an increase to 38.8% in female directors. Women’s board representation at banks and financial services is above average in both geographies. Women make up 41% of bank boards in Europe and 33% of U.S. financial firms. Female board representation for the Russell 3000 Index is now 27.3%, up from 20.4% in 2019, while Russell 1000 companies have 28.2% average representation. C-suite representation remains well below the steady progress being made on boards.
Equileap released Gender Equality in Asia-Pacific, 2022 Edition during the second quarter. The survey included 1,181 companies in the region, representing over 23 million employees. The average gender equality score was 33%, compared to the global average of 37%. Australia turned in the highest scores, including the top scorer, property group Mirvac, at 79%. Japan (28%) and Hong Kong (30%) have the lowest scoring companies globally. Among Equileap’s 19 scoring measures, workforce participation scored the closest to gender equality. In keeping with the global trend, women’s representation falls off at every level of management. The global average for female board representation is 26%. Asia is below that at 17%, although both Australia and New Zealand scored higher than the global average. In terms of CEOs, the regional score was 4%, slightly below the low global average of 5%. Singapore boasts 14% female CEOs and 26% CFOs, while less than 1% of CEOs in Japan are women.
Excerpts of this piece first appeared in Enterprising Investor and The Impactivate.
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