As we reach the first anniversary of lockdowns across Europe and International Women’s Day, we take a moment to look back and reflect on the progress made and challenges faced by women in the past year.
According to the IMF, gender inequality is linked to sub-optimal economic growth. Women's unpaid care work has immense economic value. According to UN Women, women's unpaid contributions to healthcare equate to 2.35 per cent of Global GDP, the equivalent of USD1.5 trillion. If we take into consideration all types of care, women's unpaid contribution to the world economy reaches USD11 trillion1. Women's conquest of Board rooms has also slowed down in 2020: it will now take longer for them to reach the 30 per cent and 50 per cent of all Board seats milestones even though Board diversity has been demonstrated to create value for companies. Finally, it has been relatively more challenging for women as entrepreneurs to raise capital. Yet, when more women get a seat at the table, they undeniably bring value, not only for themselves and their teams, but also for their company and ultimately shareholders.
Women at Home
The pandemic has had a disproportionate negative impact on women. In the United States, women were three times more likely than men to forego employment due to childcare activities according to the US Census Bureau2. Combining working from home and home schooling has been a major challenge and is impacting women's careers. Mothers in particular have had to deal with the 'double shift' of a full day at work and a full day of childcare and household chores, an exacerbated situation during the pandemic. According to LeanIn.Org3, up to a quarter of women in corporate America are considering taking a step back from their career or leaving the workforce completely, undoing decades of progress in gender equality in the workplace… and in the boardroom.
Women in the boardroom
Women remain underrepresented in the top echelons of business and the glass ceiling too often remains unbroken.
Some recent key appointments have been positive. HSBC Private Banking has appointed its first female CEO, Annabel Spring, as HSBC is targeting 35 per cent of women in senior roles by 2025 after reaching its target of 30 per cent in 2020. In the wider industry, Jane Fraser was just appointed the first female CEO of a Top Tier US Bank at Citigroup. Despite such progress, there remains an immense shortage of female talent in the top ranks of the corporate world.
Only 0.8 per cent of the MSCI ACWI Index had majority-female Boards. 2020 actually saw a noticeable slowdown in the rate of increase for female representation on boards, with an increase of just 0.6 per cent among the MSCI ACWI Index4. At this slower pace, women would fill 30 per cent of Board seats by 2036 and 50 per cent of Board seats by 2069, instead of 2029 and 2045 respectively if the 2019 rate of growth had been maintained.
In some countries, particularly in Western Europe, regulators have stepped in by imposing quotas of women at the board to remediate that gender disparity. France, Germany, Italy and Belgium have all imposed binding quotas which led to a drastic increase in the number of women in the boardroom. But according to the EU Commission, only France has reached and surpassed its target of 40 per cent of Women on the Board of listed companies as the EU average stands at 28.7 per cent as of 2020. Meanwhile, approximately 31 per cent of the constituents of the MSCI Emerging Markets Index still had all-male Boards in 2020, albeit down from 34.3 per cent in the previous year. Qatar remains the only country with no woman on the Board of any company. Interestingly, Women represented 18.7 per cent of CFOs in listed Emerging Market companies in 2020, versus 12.1 per cent in Developed Markets.
The lack of women represents a missed opportunity not only for them and the economy, but also for shareholders. Gender Lens Investing means deliberately incorporating gender analysis into a financial analysis in order to get better outcomes.
Gender diversity in senior roles has been shown to be a long-term performance driver for companies when it comes to value creation, risk management, profitability and ultimately shareholder performance. A 2020 survey of the FTSE 350 revealed that companies with no women on their executive committees had a net profit margin of 1.5 per cent, whereas those with executive committees with more than 33 per cent women achieved a 15.2 per cent net profit margin5. Diverse teams often take better decisions due to greater cognitive diversity and lead to greater innovation. Greater gender diversity at the company level demonstrates better talent and human capital management.
Women at work
Women deliver growth and value in companies but their progress should not be overly simplified by solely looking at women in Board seats. We need to look at women in wider senior management positions, the gender pay gap where disclosed, employee wellbeing and talent management and retention, including maternity leave policies. All these elements combined help maintain lower employee turnover and generally better employee satisfaction, a significant driver of the Social element of ESG. In the FTSE AWI, total shareholder return for the top quintile of companies was better than those in the bottom quintile for Gender pay gap over multiple time periods. This relative outperformance of total shareholder returns of companies with lower gender pay gap has accelerated in recent years6.
Women entrepreneurs are also facing greater challenges when fundraising for their businesses and investment ideas. According to the Harvard Business Review, women-let start-ups received just 2.3 per cent of VC funding in 2020, a drop from 2.8 per cent in 2019 which was shockingly an all-time high7. This is partially explained by the fact that only 12 per cent of decision makers in VC firms are women, only 2.4 per cent of VC firms have a female founder and most don’t have a single female partner. This partial retreat during the pandemic may be explained by the fact that VC partners were most likely more risk adverse than usual and tended to back projects and people they were already familiar with, so less likely women. In contrast, Kauffman Fellows Research Centre found that when women venture capitalists were the decisions makers, they were twice more likely to invest in female founding teams. Even when they do secure funding, the Boston Consulting Group found that startups founded or cofounded by women were receiving on average less than half the funding than those founded by men. Yet, businesses founded by women were ultimately delivering higher revenue: more than twice as much per dollar invested.
Gender Lens Investing is a classic albeit nascent example of finding value in values. Gender Lens Investing means reaping the benefits of giving women the same opportunities to deliver economic growth and shareholder value. It is also delivering on UN Sustainable Development Goal #5 Gender Equality. Women as employees, Board members, entrepreneurs and investors drive value creation. In light of the social and financial merits of diversity, we think that companies all over the world, across countries and sectors, have an immense opportunity in recognizing the business value of gender diversity. Given all of the above evidence, a gender diverse team can create value not only for a company, but for all stakeholders involved and society more broadly.
It is important to note that broader diversity can also bring value. True diversity and inclusion must consider employees of all background, ages, genders, religion, ethnicity, preferences, culture and beyond to truly reflect society and consumers and bring an even greater diversity of thought. Unfortunately, such data is more often than not unavailable as only four countries in the world mandate diversity reporting beyond gender. We can expect more companies to disclose wider diversity data in the future and analysts looking to take advantage of it.
1 UN Secretary general's policy brief: The impact of COVID-19 on women, The Women Count Data Bub ↩
2 US Census Bureau, September 2020 ↩
3 Leanin.org, in partnership with McKinsey, Women in the workplace 2020 ↩
4 MSCI Women on Boards, 2020 Progress Report, November 2020 ↩
5 The Pipeline, Women Count 2020, 'Role, Value and Number of Female Executives in the FTSE 350' ↩
6 HSBC Global Research, Refinitiv, November 2020 ↩
7 Harvard Business Review, February 2021 https://hbr.org/2021/02/women-led-startups-received-just-2-3-of-vc-funding-in-2020 ↩