Why are corporate boards and executive suites dominated by men? Why do men make more money than women, in every country? Why do sexual harassers tend to be, overwhelmingly, men? It’s not because there aren’t a lot of women qualified to serve on boards. Or because women are somehow naturally drawn to lower-paying jobs (known as sex segregation). Or because men are somehow more driven by sexual desire than women.
It comes down to power.
In so many ways, there is an imbalance in the amount of power men and women possess, which explains how men are able to command the highest paying jobs and hold the lion’s share of board seats and corner offices.
This gender gap recently dominated the headlines in Great Britain because the country started requiring companies to disclose their gender pay data. The results were dispiriting, if not surprising: eight in ten UK firms pay men more than they pay women.1 Airlines and financial companies tended to have the largest pay gaps, in some cases gaps of more than 50%.2 Ninety percent of women work for companies that pay them less than they pay men.3 Meanwhile, here in the U.S., the Trump administration scratched the U.S. Equal Employment Opportunity Commission’s plan to require gender pay reporting,4 so we don’t have statistics like Britain’s here, and what we do know about gender-based pay is almost never company-specific. What we do know, though, shows that progress is still glacial at best—and not only on pay equity:
The gender gap is still, sadly, alive and well, and the reasons for its stubborn persistence lie largely in culture and unconscious bias, even while most nations and many states have made it illegal to engage in outright discrimination. Many of the companies with pay gaps noted that while they do pay men and women the same for substantially similar jobs, the best jobs “tend” to go to men, and women “tend” to occupy the lower rungs of career ladders. Here’s a theory: The jobs women can most reliably get tend to pay lower simply because they’re dominated by women. Is there any other way to explain the fact that we pay men more to watch cars (as parking lot attendants) than we pay women to watch children?9
This is unacceptable. And Wall Street has finally woken up to this fact.
Why? Because diversity has value for investors. A substantial body of work supports the fact that companies whose senior decision-makers are more gender-balanced tend to perform better financially, and often in terms of things that affect financial value like innovative ability and earnings quality. Diverse groups do a better job of making decisions than homogeneous ones: they evaluate more alternatives fairly because they’re less likely to surrender to the shortcuts of groupthink. That shows up in the figures: research from Credit Suisse shows that companies with at least one female director generated excess returns of over 3% per year compared with those with no women on boards, and companies with senior management teams that were at least 15% female had 50% higher profitability than those whose leadership teams had less than 10% women.10
Moreover, discrimination destroys value. We have seen many examples of companies whose share prices fell on the news of discrimination lawsuits, and there have been ample demonstrations, especially in the past year, of companies whose share prices fell due to sexual harassment—sometimes disastrously.11
Increasingly, we’re seeing investors take action. Asset managers and asset owners are voting against reelection of the members of all-male boards—and in some cases, like that of Pax World Funds and BlackRock, voting against board members when there is only one woman among the directors. There has also been a significant increase in gender lens investing, or investments and funds aimed at advancing gender equality. Gender lens strategies that invest in public market securities increased from only about $100 million in 2014 to over $900 million by the end of 2017, making it one of the fastest growing areas of sustainable investing.
The work that more and more investors are doing to support gender-diverse boards and executive suites, and to oblige companies to commit to pay equity, is aimed squarely at the power gap between men and women. Eliminating that gap can help to improve employee productivity and morale, improve decision making, unlock innovation and creativity and, in short, create value for investors. It makes financial sense. It’s not just right, it’s financially smart.
Gender equality, something that has been on the agenda of our society for decades, has finally arrived on Wall Street. Let’s make sure it stays there.
The statements and opinions expressed are those of the author of this report. All information is historical and not indicative of future results and subject to change. This information is not a recommendation to buy or sell any security.