Women & Investing: Why Gender Diversity Matters to Investors

by Joseph F. Keefe, CEO, and Sallie L. Krawcheck, Chair, Pax Ellevate Management LLC

The business case for gender diversity is now well documented. The research is compelling: when women are at the table – and better yet, in leadership positions – companies simply perform better.

A 2014 Credit Suisse study of 3,000 companies assessing the level of women in senior management found that more diversity in management coincides with better corporate performance and higher stock market valuations.1 A 2014 Thomson Reuters report concluded that, on average, companies with no women on their boards underperformed relative to gender-diverse boards and had slightly higher tracking errors, indicating potentially more risk.2 A 2012 Credit Suisse report found that companies with women directors outperformed those without women directors in return on equity, average growth and price/book value multiples.3 A Catalyst study found that companies with three or more women directors outperformed those with no women directors as measured by return on equity, return on sales and return on invested capital,4 while McKinsey found that more diverse management teams deliver higher returns for shareholders across industries.5

Women bring diverse perspectives to the table, their leadership style can drive more innovation and collaboration, they are more likely to ask tough questions, and they often take a different approach to risk. It’s not that women or men are “better” but that diverse groups—where both men and women are at the table—make better decisions than non-diverse groups. Indeed, the research suggests that where gender diversity reaches a critical mass of three or more women on a board (roughly 30%), governance improves and so does financial performance.

With the business case for advancing women so clearly documented, the case for investing in companies that are leaders in promoting gender diversity has likewise become self-evident. Moreover, as the investment case strengthens, the risks of not investing in women are becoming apparent as well. Businesses that fail to embrace gender diversity on their boards and in upper management limit their own ability to grow and place their shareholders at a disadvantage.

Yet despite the powerful business case for women’s advancement, gender inequality stubbornly persists. Today only 12 percent of board seats and 11 percent of senior management positions globally are held by women. 

How do we change this? And how do we respond to the growing demand among investors to be a part of this change? 

A recent Center for Talent Innovation report found that 90 percent of women said that “making a positive impact on society” is important to them, and 77 percent said they want to invest in companies with diversity in leadership.6 Clearly, women want to invest in companies that advance women and produce other positive societal outcomes. They want their investment dollars to be part of the solution, not part of the problem.

We also need to be listening more to the “power of the purse,” and recognizing the powerful economic force that women represent. Women control 27 percent of the world’s wealth.7They are the breadwinners or co-breadwinners in two-thirds of American households. In the U.S. alone, women exercise decision-making control over $11.2 trillion – that’s a whopping 39 percent of the nation’s estimated $28.6 trillion of investable assets.8 They already are responsible for 83 percent of all consumer purchases; they hold 89 percent of U.S. bank accounts and 51 percent of all personal wealth. As Newsweek reported in 2010, “women are the biggest emerging market in the history of the planet.”9

Our companies, Pax World and Ellevate Asset Management, have joined together to offer investment strategies that are responsive to these trends.

Ellevate Asset Management was formed to direct investor capital to companies that actively embrace gender diversity. It is owned by one of us (Sallie), who also owns Ellevate Network (formerly “85 Broads”), the global professional women’s network, which provides women with networking and educational tools that can be important to their success. Pax World has long been a leader in sustainable investing, and in particular, in investing with a gender lens and engaging companies to increase gender diversity and advance women’s leadership.

In our view, investors are a key constituency for promoting gender diversity in publicly traded companies. After all, it is shareholders who own these companies, and corporate boards are in place to represent the shareholders. If diverse leadership teams perform better than non-diverse leadership teams, then it is in the shareholders’ interest, and it is the board’s duty, to promote greater gender diversity in company management and on corporate boards.

There are a few basic steps investors and their financial advisors can take, first, to promote gender diversity on corporate boards and, second, to invest in companies that are advancing women.

Regarding board diversity, investors actually have the opportunity to say “no” to all-male corporate boards each and every year when companies send out shareholder proxies in advance of their annual general meetings. Although most investors don’t vote their proxies directly, they can take steps to assure that whoever does vote their proxies—be it their financial adviser, mutual fund or retirement fund—withholds support from all-male boards.

Since 2010, Pax World has voted against or withheld support for director nominees at more than 800 companies due to insufficient gender diversity and has then registered its concern by writing letters to the companies explaining its votes. Many sustainable investing firms like Pax World take a similar stance, and more investors are joining this effort. If you agree that women should be better represented in corporate boardrooms, but your proxies are still rubber-stamping all-male corporate boards, you have the opportunity to stop being part of the problem and start being part of the solution.

Just as importantly, investors now have the option of investing in companies that have embraced gender diversity on their boards as well as in executive management. That’s why we launched the Pax Ellevate Global Women’s Index Fund (PXWEX), which invests in the highest-rated companies in the world for advancing women. Companies are ranked based on representation by women on their boards and in executive management, as well as other indicia of gender leadership.

One hundred percent of the companies in the Pax Ellevate Global Women’s Index Fund have a woman on their board while 99 percent have two or more women.

Significantly, evidence shows that when women’s representation on boards reaches a “critical mass” of three or more women—or 30 percent of an average-size board—governance improves and companies perform better. Women hold 32 percent of the board seats of companies in the Pax Ellevate Global Women’s Index Fund (vs. a global average of 12 percent) and 73 percent of the companies in the Fund have three or more women on their board (vs. 13 percent globally). Further, 25 percent of executive management positions of companies in the Fund are held by women (vs. a global average of 11 percent). Investors now have the opportunity to invest in these “critical mass” companies.

Investors, in other words, now have a choice. If you believe, as we do, that gender equality matters, you can now put your money to work doing something about it.

Article by Joseph F. Keefe, CEO of Pax Ellevate Management LLC. and President and CEO of Pax World Funds. Sallie L. Krawcheck is Chair of Pax Ellevate Management LLC. and Chair of the Ellevate Network, a gobal professional women's organization with over 34,000 members. Read their full biographies here- http://www.greenmoneyjournal.com/april-2015/gender-diversity/

About Pax Ellevate Management LLC

The Pax Ellevate Global Women’s Index Fund, managed by Pax Ellevate Management LLC, is the result of a partnership between Pax World Management LLC and Ellevate Asset Management LLC, whose principal is Sallie Krawcheck. Pax and Ellevate came together because they share the same vision about the critical role that gender diversity plays in business success over time, as well as the investment opportunity associated with investing in women. Pax has long been a recognized leader in investing in women and advocating for greater representation of women on boards. Ms. Krawcheck, one of the most powerful advocates for women in the financial services industry, is Chair of Pax Ellevate Management LLC and a trustee of the Fund.

About Pax World Management LLC

Pax World Management LLC, investment adviser to Pax World Funds, is a recognized leader in sustainable investing, the full integration of environmental, social and governance (ESG) factors into investment analysis and decision-making. In addition to the Pax Ellevate Global Women’s Index Fund, the first mutual fund in the U.S. focused on investing in companies that invest in women. Pax offers a family of seven mutual funds, ESG Managers® Portfolios, multi-manager asset allocation portfolios powered by Morningstar Associates, LLC, and separately managed accounts. Across all of its funds, Pax World withholds support from all-male corporate board slates, and working with other institutional investors, actively engages with companies to embrace gender diversity on their boards and advance women in the workplace. 

About Ellevate Asset Management LLC

Ellevate Asset Management LLC was formed by Sallie Krawcheck to provide investors with a means of directing capital to companies that actively embrace gender diversity and female leadership as a lever for business success. Krawcheck also owns Ellevate Network (formerly 85 Broads), the global professional women’s network. Both of these organizations are dedicated to the economic engagement of women worldwide.

Article Reference Notes:

1 –  Credit Suisse Research Institute, “The CS Gender 3000: Women in Senior Management,” September 2014. ROE = Return On Equity. Past performance does not guarantee future results.

2 –  Andre Chanavat and Katharine Ramsden, “Climb to the Top-Tracking Gender Diversity on Corporate Boards,” Thomson/Reuters, October 2014.

3 –  Mary Curtis, “Gender Diversity and Corporate Performance,” Credit Suisse Research Institute, August 2012.

4 – Lois Joy, et al, “The Bottom Line: Corporate Performance and Women’s Representation on Boards 2004-2008,” Catalyst, 2011.

5 –  “Women at the top of corporations: Making it happen,” Women Matter, McKinsey & Company, 2010.

6 –  Sylvia Ann Hewlett and Andrea Turner Moffitt with Melinda Marshall,“Harnessing the Power of the Purse: Female Investors and Global Opportunities for Growth,” Center for Talent Innovation, 2014.

7 –  BCG Leveling the Playing Field, 2010, https://www.bcg.com/documents/file56704.pdf 

8 – Harnessing the Power of the Purse: Female Investors and Global Opportunity for Growth, Sylvia Ann Hewlett and Andrea Turner Moffitt, May 2014. 

9 – Jessica Bennett & Jesse Ellison, “Women Will Rule the World,” Newsweek, July 6, 2010.

You should consider a fund’s investment objectives, risks, and charges and expenses carefully before investing. For this and other important information, please obtain a fund prospectus by calling 800.767.1729 or visiting- http://www.paxworld.com 

Please read it carefully before investing. An investment in the Pax World Funds involves risk, including loss of principal.

Past performance is no guarantee of future results.

Fund Objectives: The Pax Ellevate Global Women’s Index Fund’s objective is to seek investment returns that closely correspond to or exceed the price and yield performance, before fees and expenses, of the Pax Global Women’s Leadership Index*, the first and only broad-market index of the highest-rated companies in the world in advancing women’s leadership, as rated by Pax World Gender Analytics.

*  A custom index calculated by MSCI. One cannot invest directly in an index

RISKS: You could lose money on your investment in the Fund or the Fund could underperform because of the following risks: the market prices of stocks held by the Fund may fall; individual investments of the Fund may not perform as expected; the Fund’s portfolio management practices may not achieve the desired result. Funds focusing on small/medium companies generally experience greater price volatility. Investments in emerging markets and non-U.S. Securities are generally less liquid and less efficient than investments in developed markets and are subject to additional risks, such as risks of adverse governmental regulation, intervention and political developments. The Pax Ellevate Global Women’s Index Fund does not attempt to outperform the Index or take defensive positions in declining markets. Accordingly, the Fund’s performance would likely be adversely affected by a decline in the Index. As this Fund can have a high concentration in some issuers the Fund can be adversely impacted by changes affecting issuers. There is no guarantee that the objective will be met and diversification does not eliminate risk.

Copyright © 2015 Pax World Management LLC. All rights reserved. Distributor: ALPS Distributors Inc.: Member FINRA.

ALPS Distributors, Inc. is not affiliated with Pax World Management LLC, Ellevate Asset Management, Ellevate Network, MSCI or Morningstar Associates. PAX004961 (3/15).