Because It’s 2019
Canadian Prime Minister Justin Trudeau said it best when he was asked, upon announcing his half-women, half-men cabinet, why that was important to him. He simply responded, “Because it’s 2015.” Oh, Canada, I wish everyone felt that way.
Now it’s 2019, and, for the first time ever, there is no company in the S&P 500 that has an all-male board. In 2018, we had the dubious pleasure of reading in The New York Times what some British companies said in response to questions about its own board diversity, which for some companies was very low. Those reasons included, “We already have one woman on the board, so we are done — it is someone else’s turn,” and the golden oldie, “Most women don’t want the hassle or pressure of sitting on a board.” I wonder if the person who said that really interviewed “most women” on that point.
Those quoted in the last paragraph of the Times article, “Here’s Why British Firms Say Their Boards Lack Women. Prepare to Cringe,” could have been speaking from as long ago as the 1950s. Clearly, it’s time that these hidebound ideas change. For investors looking for companies that will add value in the future, picking between a company that has policies, culture, and goals that enable it to get the best from its entire workforce and a company that values men more than women is simple: The former is better positioned for competitiveness than the latter, all else equal.
All companies have employees. The better they are able to attract, retain, motivate, and develop those employees, the better the company is likely to perform. Recent research by Meggin Thwing Eastman and Panos Seretis of MSCI, which collected extensive data on dozens of sustainability issues from publicly traded companies, rated companies on sustainability. The top-line summary of that study: Companies with leading talent management practices were more than four times as likely to have a critical mass (three) of female directors than companies considered talent management laggards. And, the companies considered talent leaders had higher average employee productivity growth compared with laggards; talent leaders saw annual productivity growth of 1 percent, while laggards saw only 0.4 percent. Moreover, the annual productivity growth of the talent leaders with three or more women on their boards was even higher — 1.2 percent.
Studies like this are invaluable in understanding the role of diversity in companies. Diverse groups simply do a better job of decision-making than homogeneous groups do. They consider more options, vet them more conscientiously, and are less likely to fall prey to the perils of groupthink, a conclusion well established by academics.
Having better gender balance is not only the right thing to do from a moral point of view, it’s financially valuable. The investors who signed on to the investor statement regarding the need for corporate workplace equity transparency, as Pax World Funds did, recognizes that value.
That conviction helps to explain the rapid growth of interest in gender-lens investing. Corporations might not know how interested their investors are in gender equality were it not for investor statements like this. Usually, the only reliable opportunity investors have to weigh in on diversity is the proxy ballot, when investors can cast votes for or against directors. Many sustainable investors have used proxy votes for many years to register disapproval of all-male boards, and increasingly, more of the larger investors are starting to vote against all-male boards, and some are also voting against boards (or nominating committees) when there is just one woman on them. Tokenism may have been worth a pat on the back in the 1950s. But no more: It’s 2019.
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Julie Gorte is senior vice president for sustainable investing at Impax Asset Management LLC and Pax World Funds.