The departure of Indra Nooyi from Pepsi drops the number of female chief executives of Fortune 500 firms to just 23, down from 32 last year. With this decline, women now account for just 5% of all CEOs.
This is a discouraging pattern and brings to mind a World Economic Forum forecast that it will take 83 years to close the global gender gap in the economy and politics at current rates of progress. Investors can play a role by encouraging diversity and benefit from higher returns along the way:
- Companies in which women occupy at least 20% of board and senior management positions were more profitable across a range of metrics than less diverse rivals. (The average proportion of women in senior positions is 11% for companies in the Developed World Index.)
- Firms that retained more than 50% of their female managers through to the executive level tend to have higher returns than those that lose more than 50% of their women in management.
- This appears to reflect the fact that diverse groups are believed to make better decisions and solve tasks in a superior way, according to various studies. Homogeneous groups may be more prone to group-think.
We believe gender diversity serves as a proxy for good corporate governance and can be incorporated by investors in their strategy. Between December 2010 and this June, companies with greater gender diversity outperformed the MSCI World by around 20 percentage points, enjoying a rise of 220%. For more on this, read our sustainable investing theme, "Investing with a gender lens."
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