As the world recovers from the financial crisis and its lingering aftermath, there is a growing recognition of a direct relationship between the number women on corporate boards and in the “C” suite of companies, and financial or investment performance. In fact, there nave been numerous articles pondering whether the crisis would have been as deep if more women had been in high-level financial services posts.
Joseph Keefe (left), president and CEO of Pax World Management LLC, has written a paper, “Gender Equality as an Investment Concept.” Pax is known for its socially responsible investing (SRI) portfolios and funds. Keefe, a member of the advisory board which will select the 50 Top Women in Wealth with AdvisorOne this month, writes that, “there is an urgent need for economic and investment strategies that are focused on long-term value creation rather than short-term profits derived from financial engineering.” Rather than continue with bubble and bust cycles, investors “are hungry” he says, for strategies which embrace “long-term growth that is sustainable in the true sense of the term—the creation of durable, enduring value.”
Keefe asserts that “investing in women—or investing in companies that are committed to gender equality and women’s empowerment—is just such a strategy.” Citing numerous studies by McKinsey, Catalyst, academics and others, which report that companies with more women than average in senior management have “above average earnings and financial valuations,” “higher total shareholder return and return on equity” and were “more profitable than the median” of their peer group, Keefe notes that the bottom line is this: “investing in companies that advance women, in other words, is simply a smart investment strategy.”
In fact, Keefe cites research from Pax’s own Julie Fox Gorte and Heather Smith and their 2010 study, “Gender Empowerment and Financial Markets: A Literature Review for an Emerging Investment Discipline,” which notes that “companies that empower and advance women are likely to reap the benefits in terms of improved performance and profitability.”
But simply recognizing these trends only gets companies so far. They need to understand why women still “hold only 3% of the CEO positions and 15% of the board positions among Fortune 500 companies,” Keefe says, citing Catalyst, and “represent a mere 10% of all traditional mutual fund managers,” and only “3% of the approximately $1.9 trillion” invested in hedge funds, per a 2009 study by the Nation Council for Research on Women.
Companies have to do something about this, Keefe asserts, and he provides suggestions: Analyze the diversity on the boards and in management of the companies you are thinking of investing in, he advises. He also suggests investors “promote board diversity…be an engaged shareholder,” and “invest in micro-finance.”
Keefe notes that the decision to act on this research is “ours,” and companies“that invest in and empower women will be advantaged,” while those that do not will “eventually fall behind.”