Gender Diversity and Leadership on Corporate Boards – IMF Finance & Development Magazine | March 2019
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- Authors: RAKHI KUMAR
- Published: March 1, 2019
Evidence and rationale
- Over the past decade, mounting evidence suggests 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.
- The Fearless Girl campaign (placed in March 2017) aimed to raise awareness and change the mind-set of boards from “Why do we need gender diversity?” to “Why don’t we have board diversity?”
Investor actions and stewardship
- Asset owners and asset managers are increasingly pushing to enhance gender diversity at all leadership levels.
- As shareholders, investors use proxy voting and direct engagement to encourage companies to add female representation to boards and to address thematic ESG topics.
- Since March 2017, State Street has called on more than 1,200 companies with no women on their boards to take action; more than 300 of those companies have now added a woman to their boards and 28 more have committed to doing so.
Voting escalation policy
- State Street announced an escalation of board diversity voting guidelines in September 2018.
- 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 for three consecutive years.
- Rationale for a three-year engagement period: ensure effective independent board leadership, allow time to achieve the right skill sets and diversity of views, and recognize that adding qualified candidates can take upward of a year.
Barriers and best practices
- Frequently cited obstacle: a limited pool of suitable female director candidates.
- Additional obstacles: current practices for nominating directors and behavioral biases that undervalue women’s contributions (example: some boards require that all director nominees have CEO experience).
- Best practices:
- Ensure every candidate pool for board nominees includes diverse candidates.
- Monitor and disclose the level of gender diversity not only on boards but at all levels of management to create a stronger pipeline of qualified female board candidates.
- Perspective on single female director: having only one female director should not be seen as the end of a company’s diversity journey, but adding a female perspective is an important first step.
Products, investment approaches, and data needs
- State Street created an index to allow investors to combine impact and return: the SSGA Gender Diversity Index, launched in March 2016.
- 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.
- Shift in investor approach: moving beyond negative screening toward ESG-focused investing as a tool for potentially improving portfolio risk-adjusted returns.
- One major barrier to ESG integration: lack of reliable and uniform data about a company’s practices and their impact on financial performance.
- Stewardship initiatives calling on companies to improve disclosure about gender diversity at all levels of management aim to give investors the information needed to integrate gender considerations into company analysis.
Market momentum and remaining agenda
- Growing awareness observed 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 view: companies throughout the asset management industry should continually look for new ways to use their expertise to further empower investors to promote gender diversity at all levels of leadership around the world.
Content based on Gender Diversity and Leadership on Corporate Boards – IMF Finance & Development Magazine | March 2019
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