Investing in female leaders makes business sense

18-03-08 9:00 | About Nordea | Sustainability

Gender diversity is increasingly in focus these days, widely recognized as a crucial factor for business success.

Investors are starting to demand gender diversity in corporate leadership, and there’s mounting evidence that diversity matters for the bottom line. A recent study by Nordea found that companies with a more gender-balanced leadership have more stable returns, while others have found links to higher earnings and margins (see fact box)

Leading global asset manager BlackRock, for example, recently called for diversity on the boards of companies in its portfolio, citing higher-quality decision-making. 

Diverse boards “are less likely to succumb to groupthink or miss new threats to a company’s business model. And they are better able to identify opportunities that promote long-term growth,” BlackRock Chairman and CEO Larry Fink wrote in a letter to CEOs in January. The firm in February updated its proxy voting guidelines, adding that it expects companies to have at least two women directors on their boards.

More women, more stable returns

Companies’ efforts to promote gender diversity are increasingly in the spotlight, including in the financial services industry. In 2017, Nordea was one of 52 companies – and one of only two Nordic banks – named to the Bloomberg Financial Services Gender Equality Index, which recognises companies’ dedication to disclosure and best-in-class policies and practices in terms of gender equality. 

Nordea recently set out to investigate whether gender diversity actually pays off for shareholders, driving corporate value creation. The study, presented in the latest issue of Nordea On Your Mind (pdf, 6 MB), focused on a sample of 100 Nordic blue-chip companies. While it did not find that a larger share of female leaders delivers higher returns, it was correlated with more stable returns. 

“The companies with more gender-diverse boards and management had significantly lower volatility in returns,” says Johan Trocmé from Thematics in Nordea Research. “This is interesting in that stability of returns is increasingly being considered among investors as an integral part of a company’s sustainability,” he adds.

The researchers also found that one in three board members of the 100 Nordic blue-chip companies are now female – a doubling from 2004 to 2016, with Norway leading the way after introducing mandatory female quotas over 10 years ago.

More women - infographics

Change is still slow

In an interview with Nordea On Your Mind, Gunn Waersted, Chair of the Board at Telenor Group and Petoro AS, said there is general agreement today that diversity matters and is important to deliver strong business performance.

“What is more surprising is that the change towards greater diversity is so slow,” she said. While not a proponent of quotas or female leadership programmes, which she says singles out women as a “special interest group” that needs to be subsidised or fast-tracked, Waersted says the better approach is to ensure there is always at least one female candidate interviewed and considered in any leadership recruitment process.

Since 2003 we have asked our employees how they perceive equal opportunities at Nordea. In 2017 the score reached the highest level in 15 years.

Going forward, Nordea will continue to further increase our commitment to diversity and inclusion as an important part of our cultural transformation, and create new and agile methods of implementing and measuring the progress.

Quantifying the benefits

Most prior studies on diversity in the corporate world have focused on gender diversity, for which the data is objective, accurate and readily available. Here are some notable ones and their findings:
• A 2018 Nordea study, published in Nordea On Your Mind (pdf, 6 MB), found that companies with the most gender-diverse management had 40 per cent lower volatility in ROCE (return on capital employed). The companies in the study with more gender-diverse boards of directors also had significantly lower volatility in returns, although the results were most striking at the group management level. 
That matters for value creation, say the study’s authors, pointing to the broader universe of European small and mid-cap stocks. The study found that the top 10 per cent of those stocks generating the most stable ROCE outperformed the rest of the total group by 75 per cent over 17 years.
• In 2016, index and analytics provider MSCI found that companies with three or more women on the board had higher earnings per share and return on equity, compared to companies with no female directors for the period 2011-2014.
• The Peterson Institute for International Economics found in a study of nearly 22,000 firms in 2014 that going from 0 per cent to 30 per cent female leaders boosted the net profit margin by 15 per cent. However, the study represents a limited snapshot from 2014 and should be interpreted with care.
• Studies by Goldman Sachs and PwC separately suggest that closing the gap between male and female employment rates would significantly boost GDP levels, driving macroeconomic growth. PwC in 2016, for example, found that the UK could boost its GDP by 9 per cent if it increased its female employment rate to match that of Sweden.

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