“A world where women make up less than 20% of the global decision-makers is a world that is missing a huge opportunity for growth and ignoring an untapped reservoir of potential.”
~ Klaus Schwab, founder and chairman of the World Economic Forum
Women currently make up the majority of college graduates in the United States; they have become the primary earners in many households and control or influence more than 80% of purchasing decisions.1 Even in industries where buyers are traditionally male, women represent a growing proportion of the consumer base.2 I find, however, that perhaps the strongest indicator of women’s growing success in business is the fact that female entrepreneurs bring in 20% more revenue with 50% less money invested than their male counterparts.3
There is considerable evidence that companies that integrate gender diversity and women’s empowerment into their business models are likely to be more successful than those that don’t.4 For example:
• Companies with more women in their management withstood the 2008 market downturn better than those with fewer women5
• Gender diversity on corporate boards is one indicator of trustworthy corporations6
• A study of Fortune 500 firms found increased profitability in the firms with the strongest record of promoting women to the executive suite7
Numerous studies establish the connection between top performing companies and women at top-management or board level positions. McKinsey & Company’s “Women Matter” study suggests that the companies where women are most strongly represented at these levels are also the companies that perform the best.8 Credit Suisse tested the performance of 2,360 companies globally over six years and found that the stock value of corporations with women on their management boards outperformed those companies without women board members.9 In addition, a study at the School of Business University of Western Ontario and Wellesley Centers for Women indicates that, with three women directors, a “tipping point” is reached causing a fundamental change in the boardroom that enhances corporate governance.10
Clearly, women are good for business, but are businesses good to women?
The statistics are discouraging. While women are often now hired as frequently as men, their representation in management roles decreases with each step up the corporate ladder. Well over half (56%) of S&P 100 companies have no women or minorities in their highest-paid senior executive positions. In addition, while women make up 19% of board of director positions, they represent only 8% of the highest paid executives.11 Yet studies consistently show that by excluding women from top-level positions, companies are doing more harm than good to themselves and to their shareholders. The irony is that companies with the highest percentage of women on executive committees outperformed those with all-male executive committees by 41% in terms of return on equity and by 56% in terms of operating results.12
Joe Keefe, President & CEO of Pax World Management, a recognized leader in sustainable investing, says: “The simple fact of the matter is that, when women are at the table, the discussion is richer, the decision-making process is better and the organization is stronger. Companies that empower and advance women are better-run companies that will better reward shareholders over the long term. Thus, investors should care about advancing women in the workplace; it’s not only the right thing to do, it’s the smart thing to do.”
But what does this mean for investors?
As an investor, you can have a voice in the companies you are invested in, and your investment portfolio has the potential to make a positive impact. Through shareholder engagement investors can use the investment they hold in a company to push them to improve. Investors have the opportunity to make a difference with their investment money. I believe that my role as a financial advisor is to help clients view their portfolios as a vehicle for potential personal financial return, and also to encourage them to become an engaged and socially responsible investor making a positive real-world impact.
Not surprisingly, financial reward and social good often go hand in hand. In 1982, Calvert Investments was one of the first money managers to focus on building portfolios of socially responsible companies. They found over the years that assessing a company’s environmental, social, and governance factors, in addition to their financials, provides greater insight into the ways that the company mitigates risk for long-term success and a sustainable bottom line. In essence, sustainable and socially responsible investing boils down to investing in companies that are good for both society and the investment community.
“Investing sustainably is not just about corporate stewardship, but about building strong economies and encouraging growth and investment in ways that can be maintained in the long term. Today’s investors are increasingly aware of how non-financial factors, including social, environmental, and governance risks, can affect the bottom line. In order to maximize long-term value for shareholders, it is critical to evaluate how companies mitigate these risks for long term, sustainable value.”
– Bennett Freeman, Senior Vice President, Sustainability Research and Policy, Calvert Investments.
The concept of creating change with your investments can be traced all the way back to the 1700s when investors, for religious reasons, refused to invest in companies that manufactured or sold alcohol and tobacco. The modern era of socially responsible investing evolved during the political climate of the 1960s. During this time, socially concerned investors increasingly sought to address civil rights, labor issues, and equality for women. Investing became a means of political activism. One of the most popular success stories with respect to sustainable and responsible investing (SRI) was the role it played in helping to end Apartheid in South Africa. Today, SRI is much more comprehensive and the term has a more positive connotation: SRI investors realize that they can make conscious choices about how their money works globally and can choose to invest in companies to create a better world. Socially responsible investing is not only a way to align your investments with your values — it is also a way to help make corporations behave responsibly.
Sustainable and responsible investing is gaining in popularity among American investors, and I believe it could revolutionize corporate America. In fact, the number of SRI assets accounts for 11.3 percent of all assets under professional management in the United States – an increase of 22 percent in the past two years. And, an estimated 185 socially responsible mutual funds provide investors with a wide range of choices.13
“At Morgan Stanley, we define ‘Investing with Impact’ as an investment approach that aims to generate risk-adjusted financial returns while supporting positive environmental and/or social impact. We believe that any client who is interested can begin to think about integrating positive impact into their portfolio. The Investing with Impact Platform enables our clients to think about what impact means to them as an individual or institution, and then it offers products and services to help align those values with their investment portfolio,” says Hilary Irby, Head of Morgan Stanley’s Investing with Impact Initiative.
As a financial advisor I help my clients understand that their investments can create impact. For example, you can choose to invest only in companies whose practices are consistent with your values, or you can deliberately choose to invest in other companies with the intention of pressuring them to change their policies.
As a shareholder, an investor has a variety of ways to exercise his or her muscle. Investors routinely vote on corporate officers and changes in corporate policies. They can file shareholder resolutions. To illustrate this point: over the last decade, Calvert Investments has filed shareholder resolutions on board diversity with over 60 companies requesting that they amend their director selection criteria to include qualified women and minorities as potential candidates for the Board of Directors. As a result of these efforts, companies, including Under Armor, Netflix and Apple, have added more than 30 women and minority directors to their board.
Sheryl Sandberg’s book, Lean In: Women, Work, and the Will to Lead, has generated considerable media discussion about how women can advance as executives and in boardrooms. There is a lot of talk about sponsorship and mentorship and support. But what’s not being discussed is how women can use their own investments to empower other women.
Financial empowerment is making women a force to be reckoned with in the investment world. Once women understand that they can channel their power to make a difference, they can act on it. Studies show that as investors, women, more than men, are disciplined thinkers, good long-term planners.14 What would happen if we channeled that force to empower and advance women worldwide?
Which forward-thinking companies are in your portfolio?
Initial quote from Klaus Schwab, founder and chairman of the World Economic Forum, in response to The World Economic Forum’s Corporate Gender Gap Report 2010, based on a survey of 600 of the heads of Human Resources at the world’s largest employers.
1 Verveer, Melanne, “At Davos, Investing in Women Emerges as a Business Strategy,” The Daily Beast, January 25, 2013
2 “Women Matter, Gender Diversity, A Corporate Performance Driver,” McKinsey & Company, Inc., 2007
3 “A Wave of Angel Investing Organizations Focuses on Women,” Harvard Business Review, December 4, 2012, blogs.hbr.org/cs/2012/12/a_wave_of_angel_investing_orga.html
4 “The Pax World Women’s Empowerment Platform,” Pax World Management LLC, 2013
5 “The Pax World Women’s Empowerment Platform,” Ibid
6 “The Pax World Women’s Empowerment Platform,” Ibid
7 Keefe, Joseph F., “Gender Equality as an Investment Concept,” Pax World Management LLC, 2013
8 “Women Matter, Gender Diversity, A Corporate Performance Driver,” Ibid
9 “Gender Diversity and Corporate Performance,” Credit Suisse, 2012
10 Testa, Holly A., AIF®., “A Woman’s Place in the Boardroom,” First Affirmative Financial Network, 2012
11 “Examining the Cracks in the Ceiling: A Survey of Corporate Diversity Practices of the S&P 100,” Calvert Investments, March, 2013
12 “Investing With a Gender Lens,” Calvert Funds
13 2012 Report on Sustainable and Responsible Investing Trends in the United States, US SIF Foundation
14 Thomas, Susan Gregory, “The Rise of the Female Investor,” Wall Street Journal, February 22, 2013
Disclaimer: Elana Pianko is a Financial Advisor with Morgan Stanley Wealth Management in Beverly Hills. The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Smith Barney LLC, Member SIPC, or its affiliates.