How Does Glass Ceiling Enforce Corporate Profit Losses and Lower GDP Growth. Does Sustainable Finance Solve these Problems?
Sustainability and Sustainable Finance are among the widely discussed topics especially where Alpha is concerned. It is Picking Alpha’s mission to show the opportunities and search for solutions, so this time we have addressed to Martina Macpherson, President, Network for Sustainable Financial Markets & Visiting Fellow at Henley Business School, with questions related to the impact women (half of global population) to the economic development and growth.
Q.: Is there a correlation between larger share of female leadership and workforce involvement and national economic indicators?
M.M.: An important determinant of a company’s and country’s competitiveness is and remains its human talent – the skills and productivity of its workforce.
Female talent has a strong role to play, as gender diversity and having more women in the workforce contribute to stronger corporate performance and economic performance: According to the World Economic Forum, greater female participation in the U.S. workforce since 1970 accounts for one quarter of current GDP.
Meanwhile advancing women’s equality could add USD 12 trillion to global growth in a business as usual scenario and as much as USD 28 trillion, or 26 percent, to global annual GDP in 2025 in a full-potential scenario – in which women play an identical role in labour markets to men’s – according to a 2015 report by the McKinsey Global Institute.
Gender equality has a strong economic dimension and the reduction in the male-female employment gap has been an important driver of European economic growth over the past decade. In the last decade, it has been estimated that fully closing the gender gap would have massive economic implications for developed economies, potentially boosting U.S. GDP by as much as 9% and Eurozone GDP by as much as 13%.
Women on average… live longer, make up 50% of the world’s population, represent 60% of university graduates, control more than 60% of consumer spending globally, and in some countries drive over 70% of household spending decisions.
Q.: What is the difference in withstanding a crisis and financial crisis in particular with male vs. female leadership?
M.M.: In the turmoil and confusion following the financial crises, EU and UK referendums, several female politicians have come to prominence in their leadership roles. What’s happening in politics with the appointment of Theresa May as the U.K. Prime Minister could be described as the “glass cliff” phenomenon. The glass cliff refers to the tendency for women to be more likely than men to be appointed to leadership positions that are risky and precarious.
There is certain evidence for the glass cliff phenomenon: A 2008 academic study investigated changes in monthly share prices of FTSE100 companies on the London Stock exchange, both directly before and directly after the appointment of male or female board members. The study examined fluctuations in share prices leading up to board appointments. On the one hand, prior to the appointment of men, companies typically experienced reasonably stable performance and in sharp contrast, in the five months prior to the appointment of a woman, companies tended to experience consistently poor share price performance.
On the one hand, this phenomenon could be interpreted as a female “leadership advantage”, on the other hand, there is a real danger of gender stereotyping: Women are often perceived as team-orientated, collaborative and “care taking” – while men are seen as being better at “taking charge” behaviours.
Research by Catalyst (2005) shows that gender is not generally a reliable predictor of how a person will lead as there is as much diversity within genders as across genders.
Hence, the focus of the “glass cliff” debate must shift towards better assessing and measuring leadership capabilities, skills and context – across genders – to ensure that all individuals are being fairly evaluated on their accomplishments.
Q.: Why is the topic of green and sustainable finance very often brought up in relation to women’s integration, leadership and equality in the work force?
M.M.: The impact of gender diversity, parity and equality have been well researched and used for (sustainable) investment decision making over the last years.
However, gender inequality, human rights abuses and economic inequality remain key issues around the world. And the worldwide gap between women and men remains particularly stubborn on issues of work. According to a United Nation’s (2015-16) report, women do more unpaid household work than men, and get paid less when they do work in the formal economy alongside men. Moreover, women are predicted to face another 118-year wait for the gender pay gap to close, with only 55 of the 500 richest people in the world being women.
Another key issue is equal pay. The World Economic Forum ranks 145 countries on women’s equality like how many women participate in the workforce and how well they’re paid compared to men; health and educational outcomes; and political empowerment and representation in government. Their reports provide some interesting findings: For instance, Great Britain just ranks at #18 and the United States at #28, and while they do not struggle with the same maternal mortality rates, human rights abuses, and other challenges that impoverished developing countries face, poverty and economic inequality still remain key equality issues around the globe.
Moreover, the worldwide picture of best chances of equal treatment at work remains very mixed. The Economist’s “glass-ceiling index” reveals that Nordic countries usually come out top overall. In these countries, women are present in the labour force at similar rates to men. Meanwhile countries such as the U.S. and Britain feature below the OECD average.
Interestingly, board composition, workforce diversity and inclusion appear in the Top 15 most regulated topics in Norway vs South Korea (the country also features at the bottom of the “glass-ceiling index”) according to analytics house eRevalue. Moreover, Norway (39.4%) and Sweden (35.6%) also had the highest percentage of board seats filled by women, according to research by MSCI (2016, MSCI ACWI Index).
Q.: What’s the investment case for gender diversity, female leadership and positive performance?
M.M.: Over the years, research by MSCI, SSGA, Credit Suisse and other investors has found that gender diverse boards may also have a positive impact on a company’s financial performance, with a growing amount of research suggesting that having a minimum of three women on a corporate board represents a “tipping point” in terms of influence.
Many of these reports have highlighted that diverse boards make business sense because they better reflect the employee and customer base, and because they tap into the skills of a wider talent pool. Some reports have shown that boards and teams with more women are better at logical thinking, coordination, planning, risk management and problem solving – and have a higher collective intelligence overall.
And the benefits don’t stop there. An analysis of the S&P Composite 1500, for instance, has shown that companies with women in top leadership positions have an “increase in innovation intensity”.
E&Y and the Peterson Institute for International Economics (2016) undertook a comprehensive study of gender inequality in corporate leadership, surveying nearly 22,000 organizations across a wide variety of industries in 91 countries. Among all these different organizations, the results came through clearly and consistently: a firm with female leaders will outperform a firm with none. In fact, if 30% of a company’s leaders are women, its net margin will be six percentage points higher than a firm with no women in their executive ranks.
And in 2014, Robeco’s Governance and Active Ownership team and Tilburg University researched the link between gender diversity of company boards and stock returns. In their analysis, they have found a positive relationship between gender diversity of company boards and stock returns. The results are promising: the conclusion holds using different methodologies and after correction for other performance-related exposures and effects. The link is especially visible from 2009 onwards.
The performance benefits coupled with studies suggesting (gender) diversity can improve decision-making have been cited by both asset owners and advocacy groups in support of efforts to promote a 30% global female director goal (e.g. “The 30 Percent Club”).
However, MSCI ESG Research (2015) estimates that, based on current “business as usual” trends, women are still unlikely to comprise 30% of directorships in publicly held companies until 2027.