Money management and institutional investor communities around the world are shining a light on the issue of diversity, with a particular focus on fostering better returns.
A number of initiatives are underway in the money management industry, including Investment2020, an initiative by Andrew Formica, CEO of Henderson Group PLC, and Nichola Pease, former CEO of JO Hambro Capital Management Group, aimed at bringing more diverse talent into the sector.
More recently, State Street Global Advisors, on the eve of International Women's Day, placed a bronze statue of a young girl defiantly facing the iconic Wall Street bull. The statue, “Fearless Girl,” aims to highlight the need for action to increase the number of women on corporate boards, said a statement from the $2.5 trillion money manager. Its installation March 7 coincided with SSGA's call for more than 3,500 companies in which it invests on behalf of clients to take intentional steps to increase female representation on boards.
“Every year as part of our proxy voting guidelines review, we start looking at thematic issues we are concerned about ... data and trends,” said Rakhi Kumar, managing director and head of corporate governance at SSGA in Boston. The firm started looking at the data around women on boards in October, and spent time looking at the Russell 3000 universe and boards. But as executives started drafting their view, they realized it was relevant in other regions.
“What was really surprising was there was a focus on diversity and more pronounced conversation in the market in the U.K. and Australia on gender particularly,” but the firm was still surprised to see boards with no women at all, said Ms. Kumar. “There is actual research that shows having more gender-diverse boards helps long-term performance. That was the genesis of the thinking,” she added.
In the past the firm had engaged with companies, and this year “we have come up with a screening mechanism to identify the companies with low gender diversity — i.e. zero — starting with the outlier companies,” she said. A company might not have women on the board but have a good reason for that, she said; therefore, SSGA executives will examine the information on a case-by-case basis.
SSGA launched an exchange-traded fund last year focused on gender diversity in the workplace, which was seeded with $250 million by the $178.7 billion California State Teachers' Retirement System, West Sacramento.
The case for gender diversity is supported by data. A study by MSCI Inc. showed companies with strong female leadership generated a return on equity of 10.1% per year vs. 7.4% for those without a critical mass of women at the top. The data were as of September 2015. A study the same year by the McKinsey Global Institute showed an additional 26%, or $28 trillion, could be added to global gross domestic product by 2025 if women were to participate in the economy in an identical way to men.
But separate data also show there is still an issue. SSGA said one in four Russell 3000 firms do not have one woman on the board, and in almost 60% of the companies in the index, female representation amounts to less than 15% on their boards.
Further data were presented at the Pensions and Lifetime Savings Association's annual investment conference, held in Edinburgh March 8-10. “What our research shows us is that 82% of (pension fund trustees) are male,” said Lesley Titcomb, CEO at The Pensions Regulator, which oversees workplace pension schemes, speaking on a panel to discuss diversity.
Also on the panel, Chris Hitchen, CEO of RPMI, which runs the assets of the £25 billion Railways Pension Scheme, London, said: “We are only a work in progress in that regard, but we are taking the steps we think we can do to ensure we are conscious about our behavior.” One example is ensuring resumes are “de-genderized — at least you have more chance of getting a diverse list of candidates.”
Also at the conference Martin Gilbert, CEO of Aberdeen Asset Management PLC, said he did not understand why investment management isn't attracting more female candidates.
He said the push for more women in the sector needs to start at the graduate level, and the £302.7 billion ($372 billion) money manager tries to be “50-50 on that. But on the applications it's still about 70-30. We have got to get more women to apply. And we need to get more women into the executive committees as well. The boards are fine oddly enough — there seems a lot of capable women who can go on PLC boards and that sort of thing. It's really at that executive level that we're still struggling.”
He said Aberdeen executives are “trying very hard on that, to move women up the management ladder,” not just in terms of running assets but also in running the company.
But it is not just about gender diversity. Panelists and other executives said diversity also encompasses age, religion, race and other issues. Said Ms. Titcomb: “Only 8% of trustees are 40 or under. And only one in 10 chairs of trustees are female. I think what strikes me therefore, and I've worked in the financial services industry as a regulator for over 20 years now, is that the trustee board sector is a little bit behind the game here and is going to face an increasing challenge obviously from a diversity and inclusion perspective in terms of what that means in decision-making, but there's actually just a demographic challenge there as well about an aging population of trustees.”
The key benefit of increased diversity on boards is increased experiences and perspectives that can contribute to decision-making, said executives. With diversity of people comes diversity of thought. “What diversity does, done in the right way, is it gives you the different perspectives within a board, or a group of trustees, or within a government department, to challenge assumptions, and ask the question, are we sure we're right, is this how the world works?” said Ed Balls, former chancellor of the exchequer and economic adviser to the U.K. Treasury, also speaking at the conference. “And if everybody looks the same and talks the same and is the same, you are less likely to have that sense of challenge and that sense of perspective. And that can be about class or gender. It can also be about age.”
Mr. Hitchen in a separate emailed comment, said executives' “mission is to pay our members' pensions securely, affordably and sustainably into the far future. In order to achieve that in an era of low expected returns, we need every part of the investment chain to work as well as it can for the end investor. So our fund managers and the companies in which we invest need to make full use of the talent at their disposal and, even more importantly, ensure that they avoid groupthink when planning and implementing long-term strategies,” he said.
RPMI executives publicly recognize companies that address diversity on their boards and at the executive management level, “because we feel they are giving themselves, and us, the best chance of long-term success,” he said. RPMI will also selectively engage with companies that don't, and exercise its voting right, “not to punish them but to encourage everyone to up their game. We are stronger together so we collaborate where possible with other institutions through groups such as the Investor Forum and the 30% Club.”
This article originally appeared in the March 20, 2017 print issue as, "Looking for talent beyond the good ol' boys".