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Why Gender Diversity Should Matter to Investors

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

Women bring diverse perspectives to the table: their leadership styles can drive more innovation and collaboration 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.

Consider the research: A Credit Suisse report in 2012 found that companies with women directors outperformed those without women directors in return on equity, average growth, and price/book value multiples; A Thomson Reuters report last year 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 volatility risk; 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; And McKinsey found that more diverse management teams deliver higher returns for shareholders across industries.

With the business case for advancing women clearly documented, the case for investing in companies that are leaders in promoting gender diversity is becoming self-evident. Moreover, as the investment case strengthens, the risks of not investing in women are becoming apparent as well. We believe 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 16% of Fortune 500 board seats are held by women.

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

In a recent Center for Talent Innovation report, 90% of women said that “making a positive impact on society” is important to them, and 77% said that they want to invest in companies with diversity in leadership.

Our companies, Pax World and Ellevate Asset Management, have joined together to help answer these questions. Ellevate Asset Management has been formed to direct investor capital to companies that actively embrace gender diversity. It is owned by one of us (Sallie Krawcheck), who also owns Ellevate Network (formerly “85 Broads”) the global professional women’s network. (Editor’s Note: Sallie Krawcheck will be speaking on Tuesday at our Women Advisors Forum in New York.) Pax World is involved in sustainable investing, and has long focused on investing with a gender lens and engaging with companies to increase gender diversity on their boards.

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 boards perform better than non-diverse boards, then it is in the shareholders’ interest to promote greater gender diversity.

There are a few basic steps investors and their financial advisors can take to promote gender diversity on corporate boards and invest in companies that are advancing women.
Regarding board diversity, investors have the opportunity say “no” to all-male corporate boards every year. 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 the 2010-2011 proxy season, Pax World, for instance, has voted against or withheld support for director nominees at more than 800 companies due to insufficient gender diversity and then registers its concern by writing letters to the companies. Many sustainable investing firms like Pax World take a similar stance, and more investors are joining this effort. In other words, you have the opportunity to be part of the solution instead of allowing your proxies to rubber stamp all-male corporate boards.

Just as important, 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 have launched the Pax Ellevate Global Women’s Index Fund (PXWEX), which invests in the approximately 400 top-rated companies in the world for advancing women, as rated by Pax World Gender Analytics. Companies are ranked based on representation by women on their boards and in executive management, as well as other indications of gender leadership.

Every one of the companies in the Pax Ellevate Global Women’s Index Fund has a woman on their board, while 97% have two or more women and 69% have three or more. A study by Governance Metrics International shows that when women’s representation on boards reaches a “critical mass” of three or more women – or 30% of an average-size board – governance improves and companies perform better.

In other words, investors now have the opportunity to invest in these “critical mass” companies. The Pax Ellevate Global Women’s Index Fund has been designed to measure the contribution and capture the investment returns associated with women’s leadership.
If you believe as we do that gender diversity matters, you can now put your money to work.

Sallie Krawcheck is Chair and Joe Keefe is CEO of Pax Ellevate Management LLC, investment adviser to the Pax Ellevate Global Women’s Index Fund (www.paxellevate.com).

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