Gender Lens Investing: Diverse Corporate Leadership Outperforms

Gender lens investing (GLI) is the direction of investment resources toward the achievement of gender equality. Broadly defined, GLI describes investment funds and portfolios in private and public capital markets segments. A breadth of studies spanning two decades has repeatedly shown connections between higher levels of women in leadership (WIL) and superior financial and operational performance. This includes superior share price returns, return on equity (ROE) and profitability, as well as lower incidences of fraud, better environmental decision-making, and improved risk management. These studies serve to demonstrate the rewards of gender diversity to companies and their investors – and clarify the costs to companies and economies of the persistent gaps in corporate gender diversity: lost profits, foregone EBITDA margins and ROE, lower revenue growth, dampened credit ratings, and lower earnings for women and their households.

Comprehensive workplace gender equality is a key factor in boosting WIL levels and realizing the many associated benefits. Research shows that voluntary or mandated public disclosure of unadjusted (median) gender pay gaps moves the needle on narrowing them. Paid caregiving leave has been shown to promote retention of female employees. In addition, anti-sexual harassment policies make a significant difference in retaining and promoting women. For sustained achievement of women in leadership, corporations must hire, promote, and retain more women.

Select studies on the performance benefits of gender-diverse corporate and financial leadership (2020-2023)

Study and datasetFindings
2023
Blackrock
MSCI World Index;
Russell 1000 Index
It is diversity that counts. Study results included: (a) The more gender balanced a company’s workforce, the higher its return on assets. (b) In reiterating several analyses from the range of studies on outperformance, shares of companies with higher gender diversity across ranks outperform their less diverse peers. (c) A hypothetical portfolio maximizing women’s representation among promoted employees outperformed the MSCI World Index over the past four years. (d) A hypothetical portfolio overweighting companies with longer maternity leaves taken and underweighting those with shorter maternity leaves outperformed the Russell 1000 Index for the past four years. [1]
Harvard Business Review
200 public companies in the U.S. and Europe
Qualitative study concluded that women brought deeper discussions to boards. Both men and women reported that women are more prepared for meetings, ask more questions, and are more willing to acknowledge what they don’t know in order to get all issues into discussions. Gender diversity has resulted in better decision-making because more considerations are examined. Also, women are less concerned with popularity and how they are perceived. [2]
As You Sow
1,600 U.S. corporations
2016-22
Higher percentages of BIPOC (non-White) management are positively correlated with several higher financial metrics, including enterprise value growth rate and free cash flow per share. Large caps showed a clear and statistically significant correlation on the financial metrics. [3]
Impax Asset Management
2014-2023 corporate gender equality data
Women in management has been a key outperformance indicator: top gender-diverse leadership quartile outperformed bottom. Order of leadership factors driving outperformance: women in management, women on board, woman CFO, woman CEO.
Strategy Research Foundation
400 acquisitions, 2002-14
A target company’s sales price is approximately 5% higher with a woman on the board. Only 1/3 of the firms in the dataset had a female board member, and no firms had more than two. [4]
2020-2022
Investment Metrics
90 portfolios, 70 firms
Women portfolio managers outperform in a down market: Large-cap equity portfolio management teams led or co-led by women have outperformed all-male teams for the year-to-date period ended September 30, 2022, according to Investment Metrics. The dataset included 90 portfolios from over 70 different global asset management firms, and the results are in keeping with previous studies demonstrating outperformance by women-led and gender-diverse portfolio teams. [5]
The Pipeline
Women Count 2022
The study estimates that the lack of gender diversity in executive committees is costing FTSE 350 companies £58 billion in profits, or 2.5% of the U.K. GDP. [6]
Realindex
2,500+ cos.
Higher levels of gender diversity in leadership were correlated with 30% higher profit margins and nearly 30% higher cumulative ROE over a 5-year period. [7]
MSCI
MSCI ACWI
Companies with at least three female board members reduced their carbon emissions. While 33.3% of such companies earned the highest MSCI ESG scores, only 16.2% of companies with fewer than three women on their boards earned top scores. [8]
Credit Suisse
CS Gender 3000 in 2021: Broadening the diversity discussion (CS 3000).
As with earlier versions of this study going back to 2012, the data continued 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. [9]
Impax Asset Management
(Julie Gorte)
Literature review of corporate benefits of gender diversity. 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. [10]
Bloomberg Intelligence
Russell 1000
2021 Bloomberg study of the Russell 1000 found that board gender diversity was positively associated with a higher ROE. [11]
BoardReady
S&P 500
A higher number of companies with more than 30% female boards turned in year-over-year revenue growth than companies with less than 20% women on their boards. Those with more than 30% female board representation outperformed their less diverse counterparts in 11 of the top 15 S&P 500 industries. Revenue growth was stronger for companies with at least 30% non-White boards. [12]
Corporate Women Directors International
3,000 cos., 55 countries
Companies with a female CEO had significantly more women in executive positions and on the board. The increase in women’s leadership happened after the appointment of the female CEO. [13]
Morningstar
U.S., U.K., and Canada companies
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 average return of 4.78%. [14]
Wall Street Journal
640 companies
Top quartile companies by five measures of effectiveness had highest percentage of women in leadership. These percentages dropped for every subsequent quartile. [15]
University of Toronto
6,000 U.S.-listed companies
2000-2010
Companies with gender-diverse boards outperformed those with zero or only one woman. These companies also had fewer reporting restatements and fewer incidents of fraud. [16]
McKinsey
U.S. and U.K. companies
1,000 companies in
15 countries
Various periods to 2019
Companies in the top quartile of gender diversity in management were 25% more likely to demonstrate above-average profitability than those in the last quartile – an increase over previous results from 2017 and 2014. Growing likelihood of underperformance for companies in the lowest gender and ethnic diversity quartiles. [17]
Investments and Wealth Institute Review of academic literature on the corporate benefits of higher levels of gender diversity. Studies included: 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. [18]

[1] (2023, Nov) Lifting financial performance by investing in women. Blackrock. https://www.blackrock.com/corporate/literature/whitepaper/lifting-financial-performance-by-investing-in-women.pdf

[2] Wiersema, M., and Mors, M. (2023, Nov 17) Research: How Women Improve Decision-Making on Boards. Harvard Business Review. https://hbr.org/2023/11/research-how-women-improve-decision-making-on-boards

[3] (2023, Nov 29) The Diversity Dividend Key to Competitive Success. As you Sow. https://www.asyousow.org/press-releases/2023/11/29-diversity-dividend-key-financial-success

[4] Cappabianca, C. (2023, Jul 12) Identifying and measuring sources of alpha in gender factors. Impax Asset Management. https://impaxam.com/insights-and-news/blog/identifying-and-measuring-sources-of-alpha-in-gender-factors/

[5] Treacy, S. (2022, Nov 2) Women Portfolio Managers Outpace Men’s Performance in this Down Market. Investment Metrics. Women Portfolio Managers Outpace Men’s Performance in Down Market (invmetrics.com)

[6] (2022) Women Count 2022: The Role, Value, and Number of Female Executives in the FTSE 350. The Pipeline. https://execpipeline.com/wp-content/uploads/2022/10/Women-Count-2022.pdf

[7] Nash, Dr. J. and Guido, Dr. R. (2022) Beyond lip service: tracking the impact of the gender diversity gap. Realindex Investments. https://www.firstsentierinvestors.com.au/content/dam/web/australia/realindex/realindex_lipservice_report.pdf

[8] Milhomem, C. (2021, Mar 8) Women on Boards: The Hidden Environmental Connection? MSCI. https://www.msci.com/www/blog-posts/women-on-boards-the-hidden/02361079223

[9] Kersley, R. (2021, Sep) The CS Gender 3000 in 2021: Broadening the diversity discussion. Credit Suisse Research Institute. https://www.credit-suisse.com/about-us-news/en/articles/media-releases/credit-suisse-gender-3000-report-shows-women-hold-almost-a-quart-202109.html

[10] Gorte, J. (2021, Sep 14) The Business Case for Diversity: 2021 Update. Impax Asset Management. https://impaxam.com/insights-and-news/blog/the-business-case-for-diversity-2021-update/

[11] Contractor, S. and Cain, C. (2021, Jun 24) Gender Valuation: Quality and Size See Correlation. Bloomberg Intelligence.

[12] Subramanian, R. (2021, Jul 13) Lessons from the pandemic: board diversity and performance. BoardReady. https://www.boardready.io/report-july-2021

[13] (2021, Sep 9) Women CEOs lead to more women on boards and in senior management. Corporate Women Directors International https://www.prnewswire.com/news-releases/women-ceos-lead-to-more-women-on-boards-and-in-senior-management-301372536.html

[14] Kolostyak, S. (2021, Oct 22) Is Performance Linked to Gender Diversity? Morningstar. https://www.morningstar.co.uk/uk/news/214500/is-performance-linked-to-gender-diversity.aspx

[15] Wartzman, R., and Tang, K. (2020, Oct 23) If Women Drop Out of the Labor Force, Corporate Effectiveness Will Suffer. Wall Street Journal. https://www.wsj.com/articles/if-women-drop-out-of-the-labor-force-corporate-effectiveness-will-suffer-11603465200?mod=hp_featst_pos4

[16] (2020, Feb 12) Gender-diverse corporate boards reduce financial misconduct: U of T study. University of Toronto News. https://www.utoronto.ca/news/gender-diverse-corporate-boards-reduce-financial-misconduct-u-t-study

[17] Dixon-Fyle, S., Dolan, K., Hunt, V., and Prince, S. (2020, May 19) Diversity Wins: How Inclusion Matters. McKinsey & Company. https://www.mckinsey.com/featured-insights/diversity-and-inclusion/diversity-wins-how-inclusion-matters

[18] (link no longer available.)


 Excerpts of this piece first appeared in Enterprising Investor and The Impactivate.

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