Are Your Investments Perpetuating a Glass Ceiling?
Gender equity began as a social justice movement but momentum is picking up as engaged investors articulate the business case for eliminating the glass ceiling. Even as a growing number of investment management firms make gender equity a focus of their shareholder advocacy efforts, most firms continue to support the status quo.
According to a MSCI study, companies with strong female leadership generated a return on equity of 10.1% per year versus 7.4% for those without a critical mass of women at the top.¹ (For a humorous and insightful look at this issue, sociologist Michael Kimmel offers this TED talk to argue, “Why gender equality is good for everyone—men included.”)
Investors engaged on this issue typically use women serving on boards as a proxy for evaluating corporate commitment to gender equity. While board composition is undoubtedly incomplete, it is the best we can do right now. Corporations are not required to publicize data on the composition of their employees and so board composition has become the starting point for those who are looking to make progress in eliminating the glass ceiling.
Several countries, including Germany, France, Belgium, Iceland, and Italy have all created quotas of between 25% and 40%, of women on corporate boards. The United States is still a long way off from that. Almost 25% of all Russell 3000 firms have no women on their boards. The good news is that, in the last year, 96 previously male-only boards on the Russell 3000 added at least one female director. The bad news is that this still leaves an additional 642 firms in the Russell 3000 that continue to operate as an Old Boys’ Club.
Investor advocacy efforts in areas of gender diversity were historically led by socially progressive asset managers like Calvert Investments and Pax World. Now that mainstream investors have started to pay attention to gender diversity in corporate leadership, the largest Wall Street firms are responding. Index fund giant State Street Advisors voted against the reelection of board officers at 400 different companies this year because they had no females on their boards and no efforts to recruit for more diversity. To ensure that no good deed goes unnoticed, State Street installed the “Fearless Girl” statue in the heart of Wall Street to square off with the iconic charging bull.
BlackRock, the world’s largest asset owner, has made board diversity a strategic focus of its shareholder engagement efforts beginning this year. In the second quarter of 2017, they supported 8 of 9 shareholder resolutions focused on board diversity. This action marks a huge shift when compared to 2012 to 2016, when it only supported 2 of 98 such resolutions, according to Bloomberg.
Vanguard, the sleeper among the big three, has needed a bit more prodding to disclose its proxy voting record. Vanguard’s Investment Stewardship 2017 Annual Report cites three engagement stories, but offers no comprehensive statistics that would enable investors to measure the company’s efforts against their peers. Tim Smith of Walden Asset Management recently led a successful effort to encourage Vanguard to increase its transparency, and these investors expect more detailed reporting in future updates.
However, other large money managers like Fidelity, Goldman Sachs, American Funds (Capital Group), and many other smaller asset managers have made no detailed disclosures of their voting records that would help an investor understand their positions on issues like gender diversity, executive compensation, or climate change reporting. When this is the case, investors are left to assume that these asset managers merely support the status quo.
Many of these “quiet managers”—the big three (BlackRock, Vanguard, State Street) have only recently roused from their slumber—are hesitant to begin shareholder advocacy efforts on any issues because they don’t see how doing so helps their business profitability.
Investors can begin to influence corporate behavior by moving assets to investment managers who acknowledge their role in voting for a board of directors that make room for women. As momentum builds, it will become financially unsustainable to remain a "quiet manager." Alternatively, the do nothing approach will continue to support the status quo.
¹Lee, Linda Eling, et al. Women on Boards: Global Trends in Gender Diversity on Corporate Boards, MSCI, November 2015