More women, more money. That much is clear.
But what women count, and how does the counting happen? That’s not clear, at all.
Advocates and investors pushing for gender representation in corporate leadership are pressing harder for transparency related to the presence of women at key levels. After all, you can’t garner the results of companies with significant proportions of women in leadership if you can’t be sure of what positions women hold. New tools and reporting mechanisms are emerging, even as advocates ratchet up pressure for regulatory action.
“We need the combination of social awareness and setting standards for gender and racial data so that companies, regulators and investors can rely on accurate measurements,” said Kedra Newsom Reeves, a managing director with Boston Consulting Group.
“Tactically, for wealth and asset managers, it will begin to make their jobs a bit easier,” she said of a universally accepted standard. “Right now, it’s difficult to see which companies are doing well with women’s diversity. Trying to construct a portfolio with a fiduciary bar and social impact — data collection will make that easier.”
Tallying the proportion of women on boards of publicly held companies is straightforward, thanks to reports mandated by the Securities and Exchange Commission. Women’s advocacy organizations like Catalyst have mined such data for decades. As evidence accumulates that a significant proportion of women on boards of companies correlates with stronger and more sustainable financial performance, investors say they must have more detailed information about women in the executive ranks and leadership pipeline, the better to put money in the hands of women who could deliver superior results.
In its latest report on the “gender dividend,” Credit Suisse documents outperformance of 200 basis points of alpha for publicly held companies with higher proportions of women and ethnically diverse people on their boards and in their C-suites. Currently, women hold 28.6% of board seats at U.S. publicly held companies and 20% of C-suite positions, Credit Suisse calculated. Consulting firm McKinsey estimated that companies in the top 25% for C-suite gender diversity are 15% more likely to outperform.
Such data are compiled by sifting through reports and sorting executives and board members by gender-inferring name. Morningstar’s estimates of female representation in fund management rely on an algorithm that assigns gender according to the connotation of the name. Most recently, Morningstar’s algorithm figured that 14% of fund managers are women, based on its reading of the likely gender identities of Jessicas and Amys. Morningstar also notes company-supplied gender data and “scrapes bios” to confirm gender data by pronoun, a spokesperson said.
NUMBERS, NOT NAMES
It’s high time to do better than hand-counting women and trying to discern the gender of a Chris, investors and advocate say. If gender-correlated returns are to continue, investors need to have firm data about the number of women in key positions, now and in the future.
“Investors’ expectations for corporate DEI data disclosure have already increased to include the release of hiring, promotion, and retention rate data, alongside a company’s EEO-1,” said Meredith Benton, workplace equity program manager for advocacy group As You Sow and founder of Whistle Stop Capital, a consulting firm. A just-released As You Sow report examined financial results correlated with aspects of representation of women and ethnic minorities at 277 companies that voluntarily publish EEO-1 data. For the financial sector, the bigger the gender gap between the presence of women at the company overall and in management, “the larger the underperformance.”
EEO-1 data — the gender and ethnic makeup of a workplace — have been required since 1964 of all businesses with 100 or more employees, and of federal contractors with 50 or more employees. It’s collected by the Equal Employment Opportunity Commission. Each employer’s information is confidential. The aggregate data are used in government reports.
Companies already collect the data in a standard format, so releasing it doesn’t require any more work, just courage, said Benton and other advocates.
“We do have the information in mandatory EEO-1 filings, it’s just not disclosed and aggregated,” said Rachel J. Robasciotti, CEO and founder of Adasina Social Capital. Adasina runs funds that “create bridges between financial markets and social justice movements” and conducts its own research to define social justice levers relevant to investors’ interests. At a minimum, she said, investors need to see not only how many women are in executive leadership at publicly held companies, but also how women are distributed in each company’s leadership pipeline, to ascertain whether a company will be able perpetuate performance grounded in women’s leadership.
A little-known federal agency, the Office of Federal Contract Compliance Programs, requires that federal contractors document their spending with women and minority-owned subcontractors. Under the Biden administration, the OFCCP has taken a proactive approach to pay equity, announcing in August that it will require contractors to validate claims to equitable pay. Some transparency advocates said that the OFCCP might further assert its authority to require federal contractors to release gender and racial employee EEO-1 statistics, in the interest of ensuring that federal contractors aren’t shielding discrimination in their ranks.
Mandated reporting would help, if not from the SEC, then from any governmental authority, if the investment industry itself won’t demand transparency on gender and racial talent, said Lisa Lake Langley, founder and CEO of Emerge Capital Management. “The need for diversity reporting and its disclosure is critical,” she said. “A strong case would need to be made supporting how regulatory duties move forward with regulatory diversity disclosure.” Currently, the SEC relies on “self-assessment.”
PRECEDENTS MIGHT PREVAIL
Advocates are sharpening their arguments, at least for North American companies.
Framing the lack of transparency as a risk is one approach. Corporate policies that appear to be contained to gender equity actually reverberate through operations and risk, and thus financial performance, Robasciotti said. Pay equity is one such issue, as flouting any of the emerging state laws on pay equity disclosure and discussion could open up legal peril.
Accountability for sexual harassment violations is another. In March, President Biden signed into law the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021, which ensures that women can’t be strong-armed into keeping investigations of harassment claims out of the public eye. Adasina advocated for the law. Robasciotti counts its passage as a win for gender lens investors, because the law illustrates how corporate accountability and transparency affect shareholder risk.
Peer pressure is increasing, too. As more companies voluntarily release EEO-1 data, advocates hope to use voluntary disclosure to push for required transparency. “Thirty percent of the 30-plus-% of the Russell 1,000 are doing it,” Benton said of proactive disclosure, which is summarized in another As You Sow report. “The emphasis is shifting toward the additional release of hiring, promotion and retention data. Right now there is no standardized structure for that. We’re working on it.”
In March, Parallelle Finance launched a gender lens scorecard that equips investors with metrics for the performance of women-centered investing. The 36 funds in the scorecard reflect the emerging standard for corporate self-disclosure, said Parallelle Finance principal Marypat Smucker. Pressure is mounting for data from privately held companies and startups, to detect those that are more likely to gain the advantages of women in leadership, she said. And as more companies report EEO-1 data voluntarily, it resets the expectation for those that don’t — yet.
As ESG advocates drill down to the specifics of gender equity, they’re not likely to apply winning strategies for climate issues, said Elena Philipova, ESG director with the London Stock Exchange Group, because gender progress is slow and lacks the existential urgency of climate change. Gender and ethnic representation is also complicated by country cultures. “You have to look at the entire ecosystem,” Philipova said.
Additional tools are on the way. Toronto-based Diversio just received a $6.5m capital infusion to build out its transparency platform. The platform provides a confidential channel for employees to report gender identity, ethnic, disability and other information that goes beyond mandated reporting, explained Laura McGee, founder and CEO. Companies can validate their understanding of diversity within employee ranks and correlate financial performance with workplace programs intended to expand narrow gender and ethnic definitions.
“They have programs but they’re not getting outcomes,” McGee said. “They have programs that are not aligned with their problems.” The platform pinpoints where employers can concentrate resources to address diversity problems, thus paving the way for diversity-correlated performance gains.
The tools equip venture capital and private equity firms with ways to build diversity into new companies from the ground up, McGee said, and thus capture the financial benefits of diverse leadership from the start.
This article first appeared in InvestmentNews.