3. What are the benefits of gender diversity?
Rainmaker, the publisher of the superannuation comparison service SelectingSuper, analysed single strategy MySuper products for not for profit super funds and found that superannuation funds with above average female representation on their boards and their leadership teams achieved greater returns.
The SelectingSuper W-Index measures gender diversity of funds considering the following roles - the Chair, Deputy Chair, CEO, Deputy CEP and Trustee board.
The analysis found that;
- 71% of funds with greater gender diversity achieved above average returns;
- those with above-average levels of gender diversity achieved returns of 9.6% and 8.0% p.a. over one and three years respectively; and
- those with lower than average female representation achieved 8.7% and 7.6%p.a. respectively.
Rainmaker noted that an extra 40 basis points in investment returns compounded over a working life can make a substantial difference and could add an extra $55,000 to the average person’s retirement savings.
This piece by Frontier Advisors considers public domain research information about the status of gender diversity globally, the commercial benefits of gender diversity and includes the results of Frontier Advisor’s own study of Australian and global equity managers.
The paper considers the relationship between gender diversity and profitability. It outlines the positive relationship that various reviews have found between a companies above-average profitability and having greater gender diversity in executive teams, as well as higher financial performance and reduced variability of stock market returns where there was a higher number of women on boards.
Frontier Advisors also looked at the relationship between risk adjusted returns and gender diversity in investment teams. Whilst their sample was small, their analysis of surveyed managers found that investment teams with greater gender diversity have delivered superior risk adjusted returns for their investors.
The benefits of diversity are linked to diversity of thought and experience which helps to identify different risks and opportunities.
The Insights Papers considers the issue of gender diversity, what is contributing to it and puts forward suggestions that investors can take to improve gender diversity. The paper explores the business case for diversity from an improved business decision perspective as well as a business/financial case perspective (referring to studies that have found diverse boards and companies have had better return on assets, higher return on invested capital and better governance).
For example, the paper referred to McKinsey (2015) Diversity Matters report which examined 366 public companies across a range of industries in Canada, Latin America, the United Kingdom and the United States. The research looked at metrics such as financial results and the composition of top management and boards, and found companies in the top quartile for gender diversity were 15% more likely to have financial returns above their respective national industry medians.
The paper also referred to a five year Sodexo study published in 2018 which analysed key business performance indicators (KPIs) from 100 global entities and 50,000 managers in 80 countries. The results indicate: gender-balanced teams achieved on average a four-point higher global engagement rate compared to other management groups; an increase of five points in brand image; a 12% increase in client retention; positive organic growth, growth profit and operating profit over three consecutive years.
Following ten years of insights on gender diversity, this issue of Women Matter by McKinsey&Company (McKinsey) confirms that there is still a great deal to do to achieve gender diversity (with women only making up 25% of management positions globally). In spite of the commitment of many organisations to improve gender diversity outcomes progress has been slow overall. The report identifies the barriers that need to be addressed to achieve greater gender diversity in businesses. The report also identifies the benefits of gender diversity.
A business performance driver
Using Mckinsey’s Organizational Health Index (OHI) diagnostic tool, it continues to find a ‘strong positive correlation’ between organisations which have women in leadership positions and the financial performance of a business. Analysing 300 companies across 10 counties, looking at data from 2007-2009, McKinsey found that companies that had the most women in executive committees had an average return on equity of 22% compared with 15% average for those companies who had no women and an average 17% EBIT margin compared to 11% for those organisations with no women.
Using well known behavioural psychology research, McKinsey have identified 9 positive leadership behaviours that improve organisational performance. Analysis has revealed that;
- Diversity in leadership is key to organisational performance; and
- Women tend to use 5 of the 9 the leadership behaviours more often than men.