Can Investors Have Their Cake and Eat It Too?

To celebrate International Women’s Day and demonstrate its commitment to increase female representation in corporate boardrooms, State Street Global Advisors commissioned Kristen Visbal to sculpt a 50-inch bronze statue of a fearless girl.  The statue was installed next to a Wall Street landmark, where she defiantly stares down Wall Street’s famous charging bull. 

At the same time, State Street announced it will use its proxy voting power to put pressure on over 3,500 companies to aim for gender parity on their boards.  Firms within the Russell 3000, FTSE 350, and S&P/ASX 300 have one year to establish progress before State Street will enforce its new policy. 

In our opinion, this isn’t just a solution to addressing a widespread problem, but makes great economic sense as well.  As shown below, publicly traded companies with boards with at least 40% female representation achieve high levels of financial performance.  In fact, Credit Suisse has found that investors focusing on companies where gender diversity is an important strategy are rewarded with excess returns of 3.5% annually. 

Despite the compelling economics, just 23% of companies within the Russell 3000 Index have zero female board members, and 58% have boards composed of less than 15% female members, according to FactSet.  Worldwide, the problem is even worse, with a recent working paper from the Peterson Institute for International Economics showing that nearly 60% of the 22,000 firms surveyed globally have no female board members and just over half have no C-suite executives. 

In the U.S., even though CEO compensation of women and men are nearly identical – demonstrating that male and female CEOs are equivalently experienced and successful in this role – less than 5% of Russell 3000 firms have female CEOs!

So while women are over half of the US workforce, it’s clear that they are significantly underrepresented on corporate boards and in the ranks of corporate executives.  Sadly, if women started joining boards as often as men today, it would still take roughly 40 years to reach parity.  Therefore, we applaud firms like State Street who have launched investment strategies such as the Gender Diversity Index ETF to address this particular issue, and have begun to incorporate them into our portfolios at The Johnston Group along with other socially responsible investment strategies that are both financially impactful and socially conscious.




Mike Giefer