When women lead

More highly skilled, qualified women are in the American workforce than ever before. Yet, women still remain underrepresented in key leadership positions in the world of business. At S&P 500 companies, women currently occupy just 21% of board of directors' seats, 26.5% of executive management positions and 4.8% of CEO positions.

While many things can move the needle to increase the number of women occupying top leadership and board of directors positions, UBS has been looking closely at how investment decisions can play a role, particularly sustainable investing (SI), explains Laura Kane, CFA, CPA, Head of Investment Themes Americas for UBS. Kane is the author of the recent UBS report "Investing with a gender lens."

“For a long time, SI was considered niche. But with greater awareness, it's becoming more mainstream," Kane says, noting that gender lens investing is just one of many forms of sustainable investing.

Women and millennials may have been early adopters, but the evidence is mounting that many of the social values and sustainable practices individuals care about are also tied to attributes like greater efficiency and greater profits for companies. “We've found that there is a positive relationship between gender diversity of the board and leadership and a company's profitability and stock performance," Kane notes.

Women bring missing leadership skills

There is quite a bit of evidence to support the idea of greater gender diversity having a positive impact on performance. For example, women have the potential to fill skills gaps on boards. A 2015 study examined 16 critical skill sets that a board member needs, and found four of these critical skills were largely under-represented on the boards the researchers studied. These missing skill sets, which include human resources (29%), risk management (33%), sustainability (33%) and political/government (48%) are all female-dominant traits, meaning they are far more common in women.¹

McKinsey studies have also found female leaders more frequently exhibit five of nine leadership behaviors linked to stronger organizational performance.²

How women strengthen boards, and the bottom line

Compared to male directors, female directors tend to have more university degrees and are more likely to hold advanced degrees. They are also more likely to have strengths in marketing and sales, and to come from international and non-business backgrounds. And, since women drive 70% of consumer purchase decisions in the US, female leaders/board members are better attuned to consumer decisions.

As for hard numbers, a 2016 study from the Peterson Institute for International Economics found a substantial correlation between the presence of women on corporate boards and in the C-suite and firm performance. For profitable firms, a move from no female leaders to 30% representation is associated with a 15% increase in the net revenue.³

Finally, there is a recruitment argument, Kane says. "If a company doesn't have any women on the board, it may raise a red flag to new recruits about the culture of the organization."

How to invest with a gender lens

For individuals interested in investing with a gender lens, UBS recommends applying a screen to find companies where women are well-represented on the board and at the executive management level, and incorporating these criteria alongside traditional fundamental analysis. In simplest terms, this means selecting companies with at least three women on their board or at least 30% women in their executive management team. (To see a list of companies that meet these requirements, download the full report)

Considering gender diversity in investment decisions not only has the potential to improve returns, but also allows for investors to invest in companies that are more aligned with their personal values, in this case, support of gender equality.

The term for that is win-win.

1. Daehyun Kim, Laura T. Starks, Gender Diversity and Skill Contribution to Corporate Boards, forthcoming in American Economic Review, May 2016, UBS

2. McKinsey & Company, Women Matter 2: Female leadership, a competitive edge for the future, 2008.

3. Marcus Noland, Tyler Moran, Barbara Kotschwar, Is Gender Diversity Profitable? Evidence from a Global Survey, Peterson Institute for International Economics, 2016.

ESG/Sustainable Investing Considerations: Sustainable investing strategies aim to consider and in some instances integrate the analysis of environmental, social and governance (ESG) factors into the investment process and portfolio. Strategies across geographies and styles approach ESG analysis and incorporate the findings in a variety of ways. Incorporating ESG factors or Sustainable Investing considerations may inhibit the portfolio manager’s ability to participate in certain investment opportunities that otherwise would be consistent with its investment objective and other principal investment strategies. The returns on a portfolio consisting primarily of ESG or sustainable investments may be lower or higher than a portfolio where such factors are not considered by the portfolio manager. Because sustainability criteria can exclude some investments, investors may not be able to take advantage of the same opportunities or market trends as investors that do not use such criteria.  Companies may not necessarily meet high performance standards on all aspects of ESG or sustainable investing issues; there is also no guarantee that any company will meet expectations in connection with corporate responsibility, sustainability, and/or impact performance.

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