How Shareholders Can Accelerate Change In Gender Diversity

Women in Financial Services 2020

The 2020 edition of our Women in Financial Services report looks at the role shareholders can play in improving gender diversity in financial services.

Investors can wield great influence over firms through investment selection, formal voting and informal dialogue with management. This power can also be used to advance diversity in financial services and, in some cases, is already starting to be applied.

When shareholders shine the light on something like gender balance, there is a new willingness by board members to close the delta in a faster way
Carla Antunes Da Silva, Group Strategy, Corporate Ventures and Investor Relations Director, Lloyds Banking Group
There is a social groundswell around investors asking the difficult questions on gender. It’s not common practice but is becoming increasingly so
Jenny Tozer, Partner and Investment Manager, LGT Vestra

Some firms are proactively influencing gender balance in portfolio firms.

We wrote a letter to about 400 companies saying we would vote against boards that do not have at least one woman. Some wrote back asking how to promote women, and we gave them suggestions. Some said we will do something about it. Others told us to back off. But in the end, it worked
Richard Lacaille, Global Chief Investment Officer, State Street Global Advisors
To improve female representation on boards, we start with engagement, as we believe that has the most impact. If the board still does not improve their diversity, we will vote against a nomination committee. We have seen improvement. In 51 out of 70 times we have exercised this option, a woman came on the board
Kim Millenaar-Haasbroek, Head of Risk Analysis and Operations Due Diligence, PGGM

But when we spoke to other senior executives in the financial services industry, we found many shareholders are not using these levers to their full potential, or gender is falling down among competing priorities.

Shareholders And Gender Diversity

For many shareholders, gender diversity falls into the category of environmental, social, and governance (ESG) investing. As these initiatives are increasingly prominent, gender must fight for airtime in the ESG discussion with climate change, sustainability and numerous other issues. In 2019, just 45 US companies faced shareholder resolutions relating to board diversity, compared with 367 resolutions on corporate governance overall. A CFA Institute survey in 2017 ranked board diversity ninth out of 10 ESG issues that most impact financial markets.

Some institutional investors feel uneasy about championing gender diversity. They may be reluctant to express views in proxy votes that they are not sure are held by the beneficial owners they serve. Others worry they will be accused of living in glass houses, with poor track records of gender diversity themselves. 

For individual investors, the challenges are different. They often have a difficult time fighting through the layers of intermediation between them, their advisors, and the vehicles in which they invest. But they, too, have levers they can pull.

What Shareholders Can Do To Improve Gender Diversity In Financial Services

Institutional investors must step up into execution mode on what is a clearly defined agenda, recognizing that gender diversity does not need to compete for space against climate change and other ESG topics. These are not either/or issues. Gender diversity is a business imperative rather than merely a worthy social goal.

The firms that have had most success to date have focused on what is measurable and voteable – from board representation to the gender pay gap. They have also insisted there is senior ownership for day-to-day business decisions and intangible elements such as culture.

Other investors have been willing to enforce index exclusion, in which they petition fund managers to exclude certain cohorts of companies that don’t meet their standards – a growing phenomenon that has affected gunmakers, tobacco companies, and others.

Individual investors can also add weight to the debate. They enjoy much more influence today than in the past thanks to social media. Pressure can be applied to intermediaries to collect shareholder preferences and represent their views. Increasingly the process can be simplified, with shareholder views being digitally aggregated to share with companies, via apps such as SAY.

The Role Of Institutional And Individual Shareholders In Gender Diversity

Transparency can be a powerful weapon in enabling both institutional and individual shareholders to hold companies to account. An increase in corporate disclosure of gender data and initiatives would help shareholders influence the so-called missing middle – that vast area of mid-level management where women are greatly underrepresented.

Governments have a role to play in increasing disclosure and several governments have already made changes. The recent introduction of mandatory disclosure of the gender pay gap in the UK, France, Germany, and others has raised awareness on gender pay imbalances. Some countries take it further; Iceland requires an auditor-signed equal pay certificate attesting that women and men are paid equally. 

By embracing the latest tools and social media, shareholders – both institutional and individual – can use their power to sharpen the focus on gender diversity, injecting new ideas into the issue and fueling the debate across the financial services landscape. But to make it happen, shareholders first need to want to stand up and commit to the gender diversity cause.