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Gender diversity – much more carrot than stick

It’s International Women’s Day, which will undoubtedly be accompanied with much hand-wringing about the gender pay gap, poor pension provision for women and the lack of workplace diversity.

  • Gender equality has been seen as simply an issue of ‘fairness’ - equal opportunities and pay.
  • A survey this week by MSCI showed that firms with ‘strong talent management practices and a higher representation of women in their leadership’ show stronger financial performance.
  • Companies with higher female representation at senior levels should prove better investments over time. 

The obvious reason that these issues need attention is that it’s not fair; women should have equal opportunities and pay. The less obvious reason is that it makes sound business sense and can improve returns to shareholders.

The view that investors give something up when they pay attention to ‘sustainability’ issues is pernicious. Yet survey after survey shows that well-governed companies perform better than those that aren’t. Gender diversity makes for better investment performance.

A survey this week by MSCI showed that firms with ‘strong talent management practices and a higher representation of women in their leadership’ tend to show stronger financial performance. ‘strong talent management’ included higher female representations on boards - at least three or more each year over a two-year period.

The study divided companies into ‘talent leaders’ and ‘talent laggards’. Talent leaders – those companies with strong talent management practices - showed higher levels of productivity growth, return on equity and dividend payouts.

It concluded: “We found that average dividend payout ratios and return on equity figures were consistently higher over three years for the companies with three or more women on their board and leading talent management practices than for those with mostly male boards and lagging talent management practices”.

Is this so surprising? Not because women are so fantastic (some are, some aren’t – a little like men), but because it avoids the pernicious problem of ‘group think’. Many of the worst excesses of the credit crisis came from a bunch of people thinking the same way and no-one saying ‘hang on a minute’. Of course, it doesn’t have to be a women saying it, but certainly no-one is likely to say it in a clubby all-male board room where everyone shares the same social and educational experience.

When looked at this way, putting more women on boards, or giving women equal pay becomes a lot less stick and a lot more carrot. It is simply a good way to run a business and an easy way for investors to decide whether a business is any good.

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