UMA Research

Calls for more female participation in the economy are at high pitch…

…often based on political or cultural arguments founded on fairness. But a persuasive argument for diversity and equality can also be anchored to the bottom line.

In part one we discussed that in 2014, Sallie Krawcheck, the former Bank of American and Citigroup executive, stepped up her efforts to promote women in business and leadership.

In part two of our two-part series, we look at the direct impact of gender diversity, especially on the management level, and the obstructing factors we need to address.

Krawcheck said that her personal experience has shown that teams with greater diversity of perspective may take longer to come to decisions, but they take into account a greater array of factors, and thus, are often better decisions.

She said that as she and her team combed through the companies that rose to the top on management diversity, they turned out to be high-quality companies that appear to do any number of things, including diversity, right. Her team’s belief, then, was that these companies would provide fair long-term returns for investors, with lowered risk, over time—plus greater client focus, greater long-term focus and more innovation.

Krawcheck’s views are in line with a Morgan Stanley report –“Putting Gender Diversity to Work: Better Fundamentals, Less Volatility”– which found that high gender diversity companies have delivered slightly better returns, with lower volatility, compared with their low diversity or sector peers, and they have moderately outperformed on average in the past five years.

What’s more, the top fifth of selected companies that consistently rank gender diversity among their priorities with data to back it up outperformed their peers based on volatility and risk factors.

“In essence, companies that screen better for gender diversity metrics are higher quality companies using our other standard financial metrics,” says Chief U.S. Equity Strategist Adam Parker, lead on the Global Quantitative report.

A world view: under-represented but much potential

Ironically, despite this awareness and a shifting pendulum in some companies, Morgan Stanley researchers reported that women are still significantly underrepresented in the workplace. Though women account for more than half of the world’s population, they make up roughly a third of all employees globally and hold less than a quarter of management positions, said Eva Slotnick, lead analyst on the report.

In many countries, limited access to education, labor market conditions and cultural attitudes are major barriers to workplace entry.  And, because they are paid less, they face more discrimination and continue to shoulder the bulk of responsibility for child- and elder-care and housework, and, therefore, have fewer incentives than men to join the workforce.

Morgan Stanley’s work and the initiatives of Krawcheck, Glenmede, and American Express may only be the tip of the iceberg in understanding how diversity affects profitability but the consensus is that the impact of increasing female participation in the workface could be multifaceted and powerful: increased labor supply; higher incomes, productivity gains, ramped up corporate bottom lines; and reduced poverty in developing countries. Plus, in aging economies, particularly in the U.S., Europe and North Asia, higher female participation and employment rates can also help to counter a shrinking workforce, the Morgan Stanley report said.

With more investors focused on environmental, social and governance (ESG) disclosures, which may include information on women on boards and in the workforce, Morgan Stanley’s quantitative analysis now provides a list of stocks that screen well or poorly on gender diversity metrics, along with favorable/unfavorable stock selection model rankings. The framework is designed to compare companies vs. their regional sector peers on gender diversity indicators to avoid various regional and sector biases.

“Ultimately it is our hope that we can more overtly incorporate diversity and other social and responsible behaviors into our investment discipline,” said Morgan Stanley’s Parker.

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