The business case for gender diversity is now well-documented. The research is compelling: when women are at the table-and better yet, in leadership positions-companies simply perform better.
A 2012 Credit Suisse report found that companies with women directors outperformed those without women directors in return on equity, average growth, and price/book value multiples.1 A 2013 Thomson Reuters report concluded that, on average, companies with no women on their boards underperformed relative to gender-diverse boards and had slightly higher tracking errors, indicating potentially more volatility risk.2 A Catalyst study found that companies with three or more women directors outperformed those with no women directors as measured by return on equity, return on sales and return on invested capital,3 while McKinsey found that more diverse management teams deliver higher returns for shareholders across industries.4
Women bring diverse perspectives to the table, their leadership style can drive more innovation and collaboration, they are more likely to ask tough questions, and they often take a different approach to risk. It’s not that women or men are “better” but that diverse groups—where both men and women are at the table—make better decisions than non-diverse groups. Indeed, the research suggests that where gender diversity reaches a critical mass of three or more women on a board (roughly 30%), governance improves and so does financial performance.
With the business case for advancing women so clearly documented, the case for investing in companies that are leaders in promoting gender diversity is becoming self-evident. Moreover, as the investment case strengthens, the risks of not investing in women are becoming apparent as well. Businesses that fail to embrace gender diversity on their boards and in upper management limit their own ability to grow and place their shareholders at a disadvantage.
Yet despite the powerful business case for women’s advancement, gender inequality stubbornly persists. Today, only 16% of Fortune 500 board seats are held by women.
How do we change this?
And how do we respond to the growing demand among investors for being part of this change? In a recent Center for Talent Innovation report, 90% of women said that “making a positive impact on society” is important to them, and 77% said that they want to invest in companies with diversity in leadership.5
Our companies, Pax World and Ellevate Asset Management, have joined together to help answer these questions.
Ellevate Asset Management has been formed to direct investor capital to companies that actively embrace gender diversity. It is owned by one of us (Sallie Krawcheck), who also owns Ellevate Network (formerly “85 Broads”) the global professional women’s network, which provides women with the networking and educational tools that can be important to their success. Pax World is a leader in sustainable investing, and has long focused on investing with a gender lens and engaging with companies to increase gender diversity on their boards.
In our view, investors are a key constituency for promoting gender diversity in publicly traded companies. After all, it is shareholders who own these companies, and corporate boards are in place to represent the shareholders. If diverse boards perform better than non-diverse boards, then it is in the shareholders’ interest to promote greater gender diversity.
There are a few basic steps investors and their financial advisors can take, first, to promote gender diversity on corporate boards and, second, to invest in companies that are advancing women.
Regarding board diversity, investors actually have the opportunity to say “no” to all-male corporate boards each and every year when companies send out shareholder proxies in advance of their annual general meetings. Although most investors don’t vote their proxies directly, they can take steps to assure that whoever does vote their proxies—be it their financial adviser, mutual fund or retirement fund—withholds support from all-male boards.
Since the 2010-2011 proxy season, Pax World, for instance, has voted against or withheld support for director nominees at more than 800 companies due to insufficient gender diversity and then registered its concern by writing letters to the companies. Many sustainable investing firms like Pax World take a similar stance, and more investors are joining this effort. In other words, if you believe as we do, that women should be better represented in corporate boardrooms, rather than allowing your proxies to rubber stamp all-male corporate boards, you actually have the opportunity to be part of the solution.
Just as importantly, investors now have the option of investing in companies that have embraced gender diversity on their boards as well as in executive management. That’s why we have launched the Pax Ellevate Global Women’s Leadership Fund (PXWEX), which invests in the approximately 400 top-rated companies in the world for advancing women, as rated by Pax World Gender Analytics. Companies are ranked based on representation by women on their boards and in executive management, as well as other indicia of gender leadership.
100% of the companies in the Pax Ellevate Global Women’s Index Fund have a woman on their board, while 97% have two or more women.
Significantly, evidence shows that when women’s representation on boards reaches a “critical mass” of three or more women—or 30% of an average-size board—governance improves and companies perform better. Women hold 31% of the board seats in the Pax Ellevate Global Women’s Index Fund (vs. a global average of 11%) and 69% of companies in the Fund have three or more women on their board (vs. a global average of 13%). Investors now have the opportunity to invest in these “critical mass” companies.
Investors, in other words, now have a choice. The Pax Ellevate Global Women’s Index Fund has been designed to measure the contribution and capture the investment returns associated with women’s leadership.
If you believe as we do, that gender diversity matters, you can now put your money to work.
Effective February 26, 2018, the name of the Pax Ellevate Global Women’s Index Fund changed to the Pax Ellevate Global Women’s Leadership Fund.
Risks: Equity investments are subject to market fluctuations, the fund’s share price can fall because of weakness in the broad market, a particular industry, or specific holdings. The Fund does not take defensive positions in declining markets. The Fund’s performance would likely be adversely affected by a decline in the Index. Investments in emerging markets and non-U.S. securities are generally less liquid and less efficient than investments in developed markets and are subject to additional risks, such as risks of adverse governmental regulation, intervention and political developments. There is no guarantee that the objective will be met and diversification does not eliminate risk.
This article was originally published on the Financial Planning website on June 10, 2014. Reprinted with permission.
The statements and opinions expressed are those of the authors 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.