“The reputation of a thousand years may be determined by the conduct of one hour.” – Japanese Proverb
There was a time in human history when size and strength were defining characteristics of a person’s value and of the jobs on which the clan’s survival depended. Today, that’s largely no longer the case, but cultural patterns that developed over hundreds of thousands of years aren’t easily undone. Gender-based inequalities in pay, prestige and power persist, and undoing the bias at the heart of them isn’t something that can be done with the stroke of a pen.
If it were, we might not have a pay gap now. The Lilly Ledbetter Fair Pay Act was signed into law in 2009, strengthening civil rights laws aimed at non-discrimination in hiring and pay. But since the current administration took office, there has been a significant rollback in regulations and laws that were helpful in ending gender-based discrimination. The Center for American Progress catalogued 100 actions that it said were harmful to women and families in the first 100 days of the Trump administration.1 The current Cabinet is about 18.8% female, compared with the U.S.’s 21.7% women/men ratio2 in boards among large companies, and less gender-diverse than the past five3 cabinets. Would we expect progress in diversity from such a group? Possibly, but it’s not likely. An article in Foreign Policy magazine put it this way: “A leadership cadre with fewer women (not to mention socially conservative men) is less likely to approve legislation or implement policies that support and empower women at home or abroad, and a society in which women are discriminated against is less likely to promote women to positions of power.”4 But for those of us who believe in gender equality, despair is not warranted.
Policy, especially federal policy, is a powerful tool for shaping behavior. Luckily, it’s not the only one. We have often looked to federal policy to curb corporate actions that resulted in harm, but we sometimes forget that corporate action can be a powerful antidote to policy feebleness. There is ample evidence that corporations—even if they wanted to—probably aren’t thinking, “oh, good, now we can keep saving money by paying women less.” Why? Reputation is a powerful thing, and a corporation that depends on women at any level—as employees, stockholders, customers, investors—is understandably wary about alienating half of any of those stakeholder groups.
Reputation is even more of a powerful tool now than it was historically. Among the S&P 500, 84% of companies’ market value consisted of intangible assets in 2015.5 What that means, among other things, is that a loss of value inspired by a loss of investor confidence doesn’t have much of a safety net, which we customarily think of as the value of the bricks and mortar assets that make up the company’s value in the case of a fire sale. Wynn Resorts is a poster child for that: after allegations of sexual harassment and assault surfaced there, several Wall Street analysts downgraded the company’s rating, and the company’s share price plunged nearly 17 percent over one weekend.6 We don’t know exactly how much the value of Uber dropped during its own “bro culture” revelations, which in any case were complicated by other reports of significant misconduct, but one article late in 2017 noted that it was worth 30% less than it had been two years earlier.7
2017 was a remarkable year in many ways, not the least of which was the cultural sea change on the topic of gender harassment. Before last year, sexual harassment was something that rarely made headlines, and most of the time was probably unreported by victims, because the risk of retaliation was significantly greater than the possibility of justice. We’re not done solving the problem, and perhaps we never will be, but we’re also clear on the idea that we can make a lot of progress without getting an assist from Washington DC.
Having open, inclusive cultures in which success is not limited by gender or race or ethnicity is something that all companies need if they want to prosper, and especially if they want to grow. Companies depend on people of all genders and other stripes as customers, workers, suppliers, investors, and community members. Alienating half of them is not a recipe for competitive success. Research at Harvard showed that multinational firms were able to achieve competitive advantages over indigenous firms in Korea by aggressively hiring and promoting people from groups that were disadvantaged there—notably, women.8 Sexist pricing—charging women more than men for essentially identical products—can be embarrassing and costly for companies caught doing it.9 Companies that are involved in human trafficking and modern slavery can suffer in terms of brand image and stock price, as well as employee morale.10
Investors are more interested in gender than they ever have been before, judging by things like proxy voting and engagement. BlackRock, the world’s largest asset manager, recently has signaled in its proxy voting guidelines that all-male boards are not acceptable, and noted that boards should have at least two women on them.11 Pax has been voting like that for years, and we know our impact will be multiplied if other investors vote similarly. Another large investor, State Street, reportedly voted against directors of 400 companies whose boards were all-male.12 Moves like these show that mainstream, as well as sustainable investors, are aware of the research that links women in leadership to superior financial performance, and are prepared to act on that knowledge with proxy votes.13 There is a rich collection of literature that shows that more women in leadership positions—senior executives as well as boards—is correlated with financial outperformance, as well as several other characteristics of high-performing companies, like higher quality accounting, innovation, and more careful board monitoring. I’ve written a summary of the investment-case literature available on Pax World Funds’ website.14
Gender equality is also an economic stimulus. McKinsey reports that the global economy could be $12 trillion to $28 trillion larger by 2025 if gender gaps were reduced (the lower number) or eliminated (the higher one).15 The International Monetary Fund argues that closing gender gaps improves economic efficiency by raising productivity and improving development outcomes.16 It should be no surprise that gender equality is linked to both economic progress and financial performance; the surprise would be if that weren’t the case. OECD notes, “There can be no robust growth economy without gender equality”, and estimates that reducing the gender gap in labor force participation by half would boost GDP by 6% by 2030, or 12% if the entire gap were eliminated.17
These kinds of strong economic and financial drivers give investors reasons to care about gender equality, and to use their tools—investments, proxy voting, and engagement—to achieve that. And none of that has anything to do with policy. Policy can be a headwind or a tailwind, but compared with the economic and financial reasons for advancing gender equality, policy is more of a gentle breeze than a gale, no matter which way the winds blow.