“It’s crazy, crazy.” Wall Street heavyweight Sallie Krawcheck doesn’t hold back when asked why largely the financial world hasn’t acted on numerous pieces of research demonstrating that companies with a good proportion of women directors outperform those without.
Krawcheck, former president of the Global Wealth & Investment division of Bank of America, is behind the first product to test the research in the real world. She chairs Pax Ellevate Global Women’s Index Fund – an index of the 400 best companies in the world for promoting women on to their boards and senior management based on the MSCI World Index. Companies on the Pax Ellevate Global Women’s Index Fund, which currently has $110m in assets run against it, include Estée Lauder, GAP and Kellogg Company. Since the fund launched in 2014, it has been beating the MSCI World Index by a healthy amount: “Everybody should flock into this,” says Krawcheck, recalling her early days as a research analyst with Sanford Bernstein, a place where she rose to be its chair and CEO. “I was a highly analytical research analyst and I never liked to answer a question without numbers. But there was no research about what made a better management team and therefore drove better company performance: “If you had told me at the time that there was research that certain characteristics of management teams or boards that led to substantially higher return on equities across industries, lower risk, greater client engagement, greater employee engagement, greater innovation, more long-term focus – if you had told me those things I would have said this is the golden chalice, the holy grail.”
Krawcheck suggests the lack of action on the issue of gender and company performance is linked to the state of gender diversity in the financial industry.
“It may not be coincidental that Wall Street, the investing industry, what you might think of as the most capitalist of industries is itself highly homogenous. Its gender diversity has never been great and it’s actually gone backwards over the past two decades.”Bloomberg has created the world’s first index that tracks gender data on financial firms globally. In its second year, it has almost doubled the amount of companies participating (see box on BFGEI). But in the 2017 list of 52 companies there is only one female CEO up from zero in 2016. “The industry itself does not have a great deal of diversity or diversity of many kinds,” says Krawcheck. “And they haven’t caught on to that as a driver of their own performance nor of their investments. It is really fascinating to me. I don’t know what breaks it. There is plenty of research for example that too much testosterone on a trading floor leads to too much risk being taken. That research is out there – and that research is actionable but you certainly haven’t seen any change in the complexion of the trading business even after the financial crisis.”
RI speaks to Krawcheck a week before the inauguration of US President Donald Trump. As well as pushing for action around gender-lens investing in capital markets, she works hard on influencing policy to adopt the agenda. Pax Ellevate filed a petition for rule making with the Securities and Exchange Commission asking it to mandate that companies disclose their gender pay ratio on an annual basis, or at least issue guidance around disclosure. Krawcheck is cautious on predicting how the Trump Administration will reflect on the SEC’s attention to this: “I don’t think anyone knows what is going to happen with this administration and it’s not my expertise to speculate. I can tell you that the intention is to roll back regulation as opposed to adding any. So any role for policy here I believe is somewhat less likely to occur than it would have been under another administration.” On the wider debate of women in business, she says the election of Donald Trump has changed the tone of the debate.
“Post the Trump election the discourse on women and business, the gender pay gap, the gender investing gap has gone from a civil discussion to people getting angry
about it. I even see it in my own writing. And you sort of step back and think why. If we close the gender gap it’s good for everybody – women, families, society and the economy.
Krawcheck has a new book out – Own It: The Power of Women at Work that looks at the progress of women in business. It explores themes such as the different qualities women bring to work and the economic power of women: “We can begin to affect change. We control $6rn of investible assets and we direct 80% of consumer spending in the US. For more than half the workforce, we’ve had this power for a while and what’s changing is that we have the ability to use it and can now invest in companies whose values align with ours,” she says.
Once again, Krawcheck has put her weight behind this launching a solution to the gender-investment gap through Ellevest, a digital platform focused on women that places users’ money in low-cost exchange-tradedfunds. It matches investments to users’ life goals such as starting a business, starting a family or buying a home.
The robo-advisor platform takes into account facts around how women’s financial experiences differ from men’s such as longer life spans and the chance of extending time off work. As of September, Ellevest raised $9m in its second round of funding, including from tennis heavyweight Venus Williams. Krawcheck is optimistic women, and also millennials will help push the needle on gender-focused investing: “In some ways I look at Pax Ellevate and that’s worth $110m in assets starting from scratch – that’s not bad. The second part of me says that’s nothing compared with that the industry is. And the third part of me says the one that’s going to make this grow are going to be women and millennials. It is not going to be traditional investors.”