Research has demonstrated the value of gender diversity in corporate leadership roles, namely as it relates to improved financial performance. Even though women comprise fifty percent of the global working-age population and have educational attainment comparable to men, they have significantly lower labor market participation rates than men. That gap is more extreme when considering women in management positions. Perhaps the most studied element of leadership is gender diversity at the board of directors’ level. According to a study by MSCI, companies whose boards include at least three women had median increases of 10% in return on equity and 37% on earnings per share, while those with no women were actually adversely affected in those areas of financial performance. These findings are echoed in studies by Credit Suisse and the Peterson Institute for International Economics. A recent study by McKinsey found that companies in the top quartile of gender diversity on executive teams were 21% more likely to outperform on profitability. Partly as a result of these data, more than half of developed nations have begun implementing government requirements or targets to advance gender equity in the private sector.
While this effort to mandate board diversity is still nascent in the US, there is ample evidence that companies are moving in that direction on their own (among G10 countries, while the US leads only Japan in overall board diversity, US companies are improving at a greater rate than a number of our G10 peers ). We think this represents an underappreciated opportunity to find financial value in an area that simply doesn’t appear in traditional financial metrics. As such, the Social Impact sleeve of our Impact investment effort includes a number of managers who are able to take advantage of this rapidly changing demographic in corporate leadership and we expect portfolio performance to reflect this over time.