Women on boards: the investment case for more diversity

The statue of the Fearless Girl facing the Charging Bull in NYC. Picture: AP

Consider AMP, still one of the most widely held stocks in Australia. In the wake of the resignation of their chairman, Catherine Brenner, the board of financial services giant AMP was rocked once again with the simultaneous resignations of two of the three remaining female directors.

The resignations, triggered by strong pressure from institutional and retail investors, who had demanded more AMP boardroom heads following revelations of financial misconduct by senior executives, did nothing to halt AMP’s share price slide. Nor did the resignations do much for the gender balance cause. Now AMP’s board is almost fully male. Patty Akopiantz is the only female director left, but she will be leaving at the end of 2018.

As AMP struggles to revive itself State Street’s global chairman and chief executive Jay Hooley had a subtle yet powerful message for Australian companies and investors when he was visiting Sydney last month.

“We think that more diverse boards produce better investment outcomes,” the head of the Boston-based $US3 trillion investment group, the third-largest funds manager in the world, said.

Hooley’s comment was not directed at any company in particular, but coming from him, it carried enormous weight. And it was very timely too.

Back in March, Australian Institute of Company Directors chairman Elizabeth Proust said she was “cautiously buoyed” by results showing women had accounted for almost half of all board appointments in 2018.

At the same time, Proust said she was “still frustrated by the stagnation in appointment rates by the 63 boards that believe a token woman is enough to achieve the benefits of diversity”.

A 2016 survey by the respected Peterson Institute for International Economics, encompassing 21,980 firms from 91 countries, concluded that the presence of women in corporate leadership positions had a direct link to a firm’s performance. “This correlation could reflect either the pay-off to non-discrimination or the fact that women increase a firm’s skill diversity,” the survey found.

A separate study by the global stockmarket index group MSCI, completed in 2015, went much further by finding that companies in the MSCI World Index with strong female leadership generated a much higher return on equity (10.1 per cent) than those without (7.4 per cent).

MSCI analysed US companies over a five-year period (2011-16) and found those that began the period with at least three women on their board experienced median gains in return on equity of 10 percentage points and earnings per share of 37 per cent. In contrast, companies that began the period with no female directors experienced a -1 percentage point ROE and -8 per cent EPS over the study period.

“The possibility of performance benefits coupled with non-financial studies suggesting diversity could improve decision-making have been cited by both global asset owners and advocacy groups in support of efforts to promote a 30 per cent global female director goal,” MSCI said.

But, in an update last year, it said that overall progress had been slow, even lagging the business-as-usual rate of increase it anticipated in 2015.

“We now project that it will be at least 2028, rather than 2027, before 30 per cent of MSCI ACWI Index company board seats are filled by women, if the current rate of increase remains unchanged,” it said.

Australia is also lagging on the 30 per cent benchmark, albeit slightly. The latest data from the AICD shows the percentage of women on ASX 200 boards is 27.7 per cent, with five companies having no female directors and many boards having just one.

“Tokenism, the practice of making a symbolic but ineffective effort to do a particular thing, is becoming one of the most insidious enemies of progress towards diversity and may result in us most likely missing our target of 30 per cent women on ASX 200 boards by the end of this year,” Proust said.

Charging bulls and fearless girls

Halfway around the world, in downtown Manhattan, a highly controversial 1.3m bronze statue called “Fearless Girl” has become synonymous with global efforts to promote and enhance gender diversity.

Commissioned by Hooley’s State Street, the statue of the small girl, hands on hips, has been positioned for the last 12 months opposite the famous “Charging Bull” statue located in New York’s financial district — sending a strong diversity call into boardrooms not just in the US but around the world. She is about to be relocated to Wall Street, opposite the New York Stock Exchange.

Hooley, for one, is relishing the move. After attracting some 3 billion tweets, Fearless Girl has become the global poster girl for workplace equality and diversity.

“It really unearthed, I think, this deep-seated tension around gender diversity,” Hooley said.

State Street is already recognised as a frontrunner in the gender diversity area, having launched an exchange-traded fund several years ago under the ticker code SHE.

“SHE invested in firms that had a good balance of diversity on their boards, just to demonstrate that it would outperform the firms that didn’t have good gender diversity,” Hooley said.

“We landed on gender diversity as something we wanted to lean into. Fearless Girl came about as a result of that, and I think there’s been a whole avalanche of good stuff that’s come out on the importance of gender diversity and why it builds stronger companies.”

So, from a retail investor perspective, is gender diversity really a crucial issue in terms of what they’re investing into? Hooley is adamant that diversity and financial performance are intertwined.

“If more than half of the talent in the world is female, and you’re not balanced on gender diversity internally within the organisation, ultimately, you’re not going to be attractive to the women that are entering the workforce,” Hooley says.

“You’ve essentially sub-optimised your ability to recruit talent.

“In the world of company performance, if there was one correlation between an act and performance, it would be who’s got the best talent.

“I think there is a direct link, which is if you’re attractive to talent of all backgrounds, not just gender but LGBTQ, all sorts of backgrounds, then you’re going to get the best talent, and you’ve got the better chance of outperforming your competitor. It’s that simple.”

That’s sound advice for Australian companies still dragging the gender chain.

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