Gender diversity: What does the data say?

Progress has been steady, if slow, with a few bright spots.

There is always good news and bad news when it comes to gender diversity.

Last week, FTSE announced that the share of women directors at the biggest 350 listed companies in the UK had met the government’s 40 percent target – a full three years ahead of schedule.

As FTSE noted, that is even more remarkable given the lack of mandatory quotas in the UK and compares well with the proportion of women on European boards (36 percent) and in North America (30 percent) – although all global regions are making discernible progress.

Looking at the details, however, presents a less than rosy picture, says Diana van Maasdijk, founder of diversity data firm Equileap. “Despite all the talk about women in leadership positions, data shows that is still a very, very rare phenomenon,” she says. “Of the 4,000 companies we cover globally, only 6 percent have female CEOs as of 2022.”

Equileap itself was born out of a desire to look beyond the number of women on boards and consider gender diversity as a whole, from the boardroom all the way down the supply chain. A sobering conclusion of the firm’s research is that a diverse board is no guarantee of better overall policies and performance on diversity.

Firms with gender-balanced boards received overall diversity marks ranging from 11 to 79 (out of 100), according to Equileap.

Even after six years of publishing an annual gender diversity report, Equileap’s 2023 edition contains some pretty depressing numbers, warns van Maasdijk.

Lowlights include the fact that only 28 out of 4,000 companies have no gender pay gap, while just 18 companies report gender balance at all levels. At the same time, a slim majority of companies (60 percent) have an anti-sexual harassment policy.

Yet the idea that gender-diverse companies perform better is more than wishful thinking – it is also borne out by data.

Research by McKinsey shows that companies with the most diverse executive teams were 25 percent more likely to experience above-average profitability than peer companies in the bottom quartile, and this premium is increasing over time.

Other studies show that diverse decision-making results in fewer instances of problematic business practices, such as fraud, corruption, bribery and shareholder battles, and is even associated with greener lending practices.

The lure of a “diversity premium” or betting on women to beat the market has given rise to “gender lens investing”. Indeed, thematic indices – such as Equileap’s 100 leaders index – regularly outperform benchmarks such as the MSCI World.

Within individual markets, Equileap’s first ever national gender index, the France 40 Index, has outperformed its benchmark over three years, while gender-diverse firms in APAC have done so since 2010.

Measuring diversity

While it is important to track key outcomes such as gender and pay balance, van Maasdijk believes the difficulty and value lies in capturing what an organisation has done to create a culture of equality, equity and equal opportunities.

Equileap scores companies on a scale between zero and 100, and considers whether they have the right policies in place for parental leave for both men and women, flexible working, anti-discrimination, anti-sexual harassment and so forth.

Improving diversity in a male-dominated workforce usually means adding women, but the aim should always be achieving a gender balance at all levels, she says. Companies with more women in fact receive poorer grades from Equileap compared to those with a gender balance.

The materiality of diversity also varies by sectors. The World Benchmarking Alliance (WBA), which measures the impact of businesses, has identified the apparel, food and agriculture sectors as being particularly high-risk for women. This is due to the high number of women workers involved in their operations, coupled with often poor working conditions and polices that are not supportive of women.

WBA is currently broadening its gender indicators to incorporate child and family care, violence and harassment, worker safety, professional development, gender-responsive procurement, and grievance mechanisms and human rights. An economy-wide gender benchmark based on the new methodology is planned for November.

But to truly progress, women need the support of their male colleagues, says van Maasdijk, and allyship is not something easily measured.

“We need to see men standing up for gender equality and saying things like ‘I will not sit in a committee, or in a board, or at a panel if there’s no gender balance’, or ‘I will take my paternity leave’.

“Women will simply not stay in their jobs if they find out they’re being paid less than their male colleagues or if they come back from maternity leave and find out they’ve been demoted.”

Diversity in finance

First the good news: financial institutions have come leaps and bounds on their own diversity over the past year.

In Equileap’s rankings, the sector has risen from fourth out of 11 in 2022 to second in 2023. As the firm noted: “To see such clear moves at a global level and across such a large dataset is unusual… it is safe to conclude that something is happening.”

The rest is a mixed bag.

Charlotte Hugman, engagement lead at the WBA, said: “Financial institutions generally perform well on their baseline commitment to gender diversity, but real progress is still needed on what you might think of as impact or more in-depth indicators, such as gender parity in senior leadership positions and the gender pay gap.

“Performance also varies across different types of financial institution. Over a third of pension funds have met the 40 percent of women on boards target – compared to 20 or 30 percent of banks, development finance institutions, and investment consultants, with lower representation for other types of financial institutions.”

WBA produces a financial sector benchmark – one of seven benchmark areas – that ranks 400 financial institutions on multiple sustainability topics, including diversity. The sector benchmark is notable for setting a higher threshold for board representation – 40 percent compared to 30 percent for other industries – and for making gender a governance factor, not a social one.

Financial institutions are also assessed on the clarity of their engagement policies on sustainability and other impact areas.

This is in recognition of their outsized influence as investors and shareholders, says Hugman. WBA’s investor engagement team routinely shares data on other companies with FIs so they can better decide engagement priorities and targets.

“Secondly, we assess financial institutions as being companies in their own right,” says Hugman. “As stewards and engagers, financial institutions can more credibly tell companies to do something when they themselves have improved on the topic, so that is a key motivation to progress on gender diversity within their own organisations.”