## Gender Diversity and Leadership on Corporate Boards

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**Canonical URL:** [Gender Diversity and Leadership on Corporate Boards](https://www.imf.org/-/media/files/publications/fandd/article/2019/march/gender-diversity-and-leadership-on-corporate-boards-kumar.pdf)

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### Evidence and rationale
- "Over the past decade, there has been mounting evidence that greater levels of gender diversity can have a positive impact on corporate performance and economic growth."
- MSCI found that companies with strong female leadership at the board level generated a return on equity 36.4 percent higher than companies without a critical mass of women on their boards.
- Investors are interested in encouraging gender diversity on corporate boards, in the C-suite, and at other levels of management for both economic and social reasons.

### Stewardship actions and the Fearless Girl campaign
- In March 2017, State Street placed the "Fearless Girl" statue in New York’s financial district to raise awareness about gender diversity in corporate leadership.
- The campaign extends beyond awareness to active shareholder stewardship through:
  - Proxy voting (including voting against nominees to all-male boards not taking adequate steps to add female representation).
  - Direct engagement with companies on diversity and other thematic ESG topics.
  - Publishing thought pieces to educate boards on pathways to increase diversity at all levels.

### Engagement outcomes and escalation policy
- Since March 2017, State Street called on more than 1,200 companies with no women on their boards to take action.
- Results reported:
  - More than 300 of those companies have added a woman to their boards.
  - 28 more have committed to adding a woman.
- In September 2018, State Street announced an escalation of its board diversity voting guidelines:
  - Beginning in 2020 in the Australian, UK, and US markets and in 2021 in Canada, Japan, and continental Europe, State Street will vote against the nominating committee’s entire slate of nominees if a company:
    - does not have at least one woman on its board, and
    - has not engaged in successful dialogue with State Street on the matter for three consecutive years.

### Rationale for the three-year engagement period
- Goal: ensure effective independent board leadership involving the right skill sets and diversity of views.
- Recognizes that adding qualified candidates is a thoughtful process "that can take upward of a year."
- View: adding a female perspective (even a single female director) is an important first step toward shifting board mind-sets from "Why do we need gender diversity?" to "Why don’t we have board diversity?"

### Barriers to board gender diversity and recommended practices
- Commonly cited obstacle: a "limited pool of suitable female director candidates."
- State Street identifies other leading obstacles:
  - Current nominating practices (for example, some boards require that all director nominees have CEO experience).
  - Behavioral biases that undervalue the contributions of women in the workplace.
- Best practices promoted:
  - Ensure every candidate pool of board nominees includes diverse candidates.
  - Monitor and disclose the level of gender diversity not only on boards but at all levels of management to build a stronger pipeline of qualified female board candidates.

### Financial products and ESG integration
- State Street created an index to align impact and return:
  - Launched in March 2016, the SSGA Gender Diversity Index is designed to promote gender diversity and harness potential elevated returns of companies with greater gender-diverse leadership.
  - The index can be combined with a charitable component to contribute a portion of the advisor’s revenue to charities that focus on science, technology, engineering, and math programs for young women.
- Trend in investor approaches:
  - Movement beyond negative screening toward ESG-focused investing as a tool for potentially improving a portfolio’s risk-adjusted returns.
  - A major barrier to ESG integration is a lack of reliable and uniform data about companies’ practices and their impact on financial performance.
  - State Street’s stewardship initiatives call on companies to improve disclosure about gender diversity at all levels of management to provide investors with necessary information to integrate gender considerations into company analysis.

### Industry uptake and next steps
- Growing awareness across the investment ecosystem—from asset owners to asset managers to corporations.
- According to the Wall Street Journal, as of March 2018—the one-year anniversary of the launch of Fearless Girl—asset managers and owners controlling more than $13 trillion had joined State Street in making gender diversity a stewardship priority.
- State Street’s position: the effort is a start, and asset management industry participants should continually look for new ways to empower investors to promote gender diversity at all levels of leadership worldwide.

*Source: Rakhi Kumar, Finance & Development, March 2019.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2019/march/gender-diversity-and-leadership-on-corporate-boards-kumar.pdf_