Why it’s time to stop thinking of gender diversity as a zero-sum game

Anne Tolmunen, Portfolio manager, AXA IM Framlington Equities, Kathryn McDonald Head of Sustainable Investing, AXA IM Rosenberg Equities and Marie Fromaget, Human Capital and Diversity Analyst, AXA IM, explain why improving diversity is important not just for the bottom line but for society as a  whole.

AXA IM: Can you explain why gender diversity is so important?

Marie Fromaget: I think gender diversity is important for both moral considerations and business reasons. There is a lot of research in the market highlighting the positive link between diversity and company performance. Some studies show, for example, the benefits diversity brings to industries, like media and IT, where innovation is a key driver and different viewpoints can be critical. Similarly, in client facing industries a diverse staff base can help to attract clients. I also see diversity, as a way to help solve the imminent talent shortage facing several sectors. By diversifying their respective employee bases, corporates can help bridge the talent gap. The big issue for these industries is how they can attract female talent.

Anne Tolmunen: I completely agree that diversity can help grow the pool of potential workers. But I think it is also important to note that diversity can also help to create further diversity. For young employees, being able to see women as leaders and key decision makers within a firm, makes it easier for them to imagine themselves in such positions. I believe it can also help to improve a firm’s culture. Having the right processes, being able to efficiently work around the unconscious biases that we all have, and ensuring that the right policies and frameworks are in place, are important ways to help women keep moving up the ladder.

That said, there’s no one single solution. But having a diverse and, more importantly, inclusive culture in the workplace can really help attract and retain female talent. On top of that, there have been numerous studies that have shown that having a better balance between genders at top decision-making positions, such as on boards of directors is positively correlated to good governance standards. In our view there is typically better disclosure and more transparency. Generally, there has been a positive correlation with representation of women at board level and good governance and decision making.

Kathryn McDonald: A lot of what we are talking about here, really, is an expression of our collective interest in understanding the investment implications of these environmental, social and governance (ESG) concepts generally, when we put our hats on as active managers.  At AXA IM Rosenberg Equities, we’re interested in finding companies that are going to have an advantage relative to their peers – or the rest of the listed equity market. We think of greater diversity as one of those advantages.

What we have observed is that among the most profitable companies, those with greater board diversity have a much better chance of maintaining their profitability, than those that don’t. We believe this is really a reflection of this idea that diverse groups of people are simply better decision makers. We believe they are more creative and have an ability to think outside the box in a way that allows them to create a profitability moat. In my view, this is a very tangible example of how diversity can help us to be better stock pickers. And, as an aside, the push for greater diversity is aligned with broader societal goals. In the past, across the wider asset management industry, there have been examples where perhaps there has been a good investment case but the outcome or impact of such investments, might not necessarily have been in society’s best interest. 

AXA IM: How does such information on gender help inform your decisions?

AT: There is a clear link between being a diverse firm – particularly at managerial and decision taking levels – and corporate success. But it’s by no means the sole ingredient, when it comes to selecting potential investments. We look at it as one of the markers of competitive advantage. We do, of course, look at all a company’s financial criteria as well. However, increasingly there is clear understanding that soft factors such as working culture and practices, your human capital, can also be key indicators of potential future performance. We’ve completely embraced these findings and incorporated them as part of our investment strategy when we look to select companies.

KM:  I think having hard data on the subject helps to move conversations around topics like diversity away from emotion and towards facts. However, as with other ESG concepts, we want diversity to play a role in informing our investment decisions, as a complement to other information. It is certainly possible to point to a list of more diverse companies – at the board level, or within management ranks, or just generally throughout organizations – but that doesn’t mean that all diverse companies are good investments.  To build investment strategies that are going to work to serve the needs of our clients we need to understand the threats and opportunities that companies face in the most robust way possible – company diversity plays a role in this exercise.

AXA IM: Is data the key?

MF: From an engagement perspective, within the responsible investing team, data and research is vital.  Companies want to do good, but they also want to see the financial reasons behind such a move. Going forward, we would like to see more and more disclosure from companies on gender-related key performance indictors so that we can duly make our own assessment. We would also like to see further research regarding the materiality of gender diversity throughout the workplace. This kind of material and support data is very helpful to make the case for further diversity – I believe it can help drive a behavioural and cultural shift at a corporate level.

KM: I think bringing analysis, like what we’ve been talking about, to the table is really part of the responsibility of active managers when they’re talking about including something new or different in their investment process.  The good news in the case of diversity data is that coverage is expanding, and new data sources are coming to the fore.  And companies themselves are now driving improved data availability as they realize the importance of diversity to investors, and ultimately, their own customers.

AT: I think the key point to make is that improving diversity is not a zero-sum game. There needs to be a recognition that improved gender diversity does not need to come at the expense of men, otherwise progress will not happen. Diversity initiatives must be about expanding the pie for everyone. By paying women more fairly, by promoting them on merit – we believe such companies are going to benefit. In addition, their partners and their children will benefit; more taxes will be paid, new customers with better purchasing power will be created, which will in turn help firms to hire more men and women. As a society we’re missing out by not completely including women in the workplace and the more we can do to change that, the better we all will be.

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