In the pre-dawn hours of March 7, 2017, a small statue of a confident girl appeared near Wall Street, just a few months after millions of women, including thousands of teachers, took to the streets in cities around the world on behalf of equal rights. Like the women's marches, the Fearless Girl statue touched a raw nerve, inspired conversations and amplified the urgency to work toward a world in which gender no longer dictates limitations on what women can achieve. Other movements, such as the #MeToo and #TimesUp campaigns, shared the theme of enabling more women to find their voices and affirm the need for change.
Following last year's milestone events, and on the 110th anniversary of International Women's Day, we believe we have finally arrived at an historic tipping point for gender equality. The popular imperative for change is intersecting with a growing business and economic imperative to leverage the untapped potential of millions of women around the world to drive the innovation and inclusive growth we need.
For State Street, Fearless Girl was linked to a call on corporate boards to act on research showing that better business performance results when more women are appointed to boards and senior management. It also symbolized countless efforts by one of the country's largest pension funds, the California State Teachers' Retirement System, whose membership is more than 72% female, to challenge the companies in which it invests to do more to promote gender equality. It is working! More than 100 companies that previously had no women on their boards have added a woman in the past year, and thousands more recognize this is a priority for their largest shareholders.
The business and economic case for gender parity is hard to refute: A study by MSCI 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 — a 36% increase of average return on equity. McKinsey & Co.'s latest research found that if women were to participate in the global economy identically to men that would add up to $28 trillion — or an additional 26% — to annual global GDP by 2025. At a time when countries like Japan are struggling to grow their economies beyond the natural constraints of an aging workforce, this gender dividend is a game-changer. Closer to home, only 5% of CEOs and only 20% of board members at S&P 500 companies are women, even as women are outpacing men in advanced education. If we value economic growth and better business outcomes, those numbers need to change.
Indeed, as we head into a future of unprecedented change, groupthink is increasingly recognized as a business liability. Companies need to embrace a diversity of thinking, competencies and backgrounds to thrive in a more complex, innovation-driven economy. The gender imperative is an urgent business imperative.
So how do we build on the extraordinary momentum of last year's events and finally move to gender parity? We take great hope in the breakthroughs behavioral economists like Iris Bohnet of Harvard University have achieved in combining insights from economics and psychology to neutralize the unconscious gender biases that prevent us from moving more quickly toward gender equality. While it might be difficult to change an individual mindset, we now have the science to re-engineer the way we recruit and promote talent in a more gender-neutral way with amended job descriptions and group interviewing approaches.
But the unique opportunity we see as institutional investors is to use the trillions of dollars in shareholder capital around the world as firepower to advance the cause of gender parity. Mindful of the need to create talent pipelines, this year State Street is joining forces with CalSTRS to ask the companies in which we are invested to disclose gender data on their senior management and across their entire businesses. The data will enhance our engagement efforts with these companies on ways they can be leaders in building a more inclusive and gender-balanced corporate world. We've reached the tipping point. We invite more investors to join our call so that fearless girls all over the world will grow up in a society where opportunity knows no gender.
Ronald P. O'Hanley is president and chief operating officer, State Street Corp. (STT), Boston, and Anne Sheehan is director of corporate governance, California State Teachers' Retirement System, West Sacramento. This content represents the views of the authors. It was submitted and edited under P&I guidelines, but is not a product of P&I's editorial team.