The investor revolution on gender diversity needs to take a long, hard look in the mirror

Chris Walker examines how investors are “unleashing” female talent…but also suggests “physician heal thyself."

One of the saddest aspects of this cruel pandemic has been how the economic burden has fallen disproportionately on women. But, as we recover, there are many reasons to hope for change. The embracing of more flexible working is a golden opportunity to alter the balance once and for all. And responsible investors are leading a social revolution; not just in demanding greater diversity in boardrooms, but by increasingly exploring “Gender Lens” investing. 

Yet, how about we start with our own industry.

A recent Morningstar analysis found there were still more UK investment funds run by someone called Dave than by women. “Dave” runs 68 funds, women collectively just 45. It’s just as bad elsewhere in Europe. In Italy 39 funds are run by men called Andrea, while there are just 23 women fund managers in total. Even the best country, Spain, still only reaches an 80:20% gender split. Hardly gender parity.

“Oh, but the States is better than Europe” I hear you say. No it isn’t. Sallie Krawcheck the CEO of Ellevest “a financial company built by women for women” gave an impassioned speech to the ‘Mobilizing the Power of Women Summit.’ She argued that Wall Street calls itself a meritocracy, but it really is a “manotocracy.” Today on Wall Street, according to Krawcheck, nearly 90% of traders are male, 86% of financial advisors, 90% of mutual fund managers, 95% of hedge fund managers, and 95% of venture capital partners. “Those males are so damn good.” 

Yeah, right…

Calvert Impact Capital’s excellent report, ‘Just Good Investing’ analysed its portfolio and found clear evidence that “on average, companies with the highest female representation in board and leadership positions outperformed those with the least.” The results suggested that “the percentage of women in leadership positions is especially important to financial performance.”

In consequence, investors have been driving change in company leadership. BlackRock encourages companies to have at least two women directors on their board. And such initiatives are growing: “The external pressure imposed by institutional investors is critical to …drive greater diversity on boards,” argues Pavita Cooper, Deputy Chair of the 30% Club, the global campaign led by Chairs and CEOs taking action to increase gender diversity at board and senior management levels to a minimum of 30%.

In the States, McKinsey believes that real change is happening. “Between January 2015 and January 2020, representation of women in senior-vice-president positions grew from 23 to 28 percent, and representation in the C-suite grew from 17 to 21 percent.” But equally McKinsey observes that more must be done below leadership level, given the broader effects of Covid on the economy. “In a year marked by crisis and uncertainty, corporate America is at a crossroads. The choices companies make today will have consequences on gender equality for decades to come.” Diversity on boards is therefore part of a broader agenda that covers not just ‘Women in Leadership’ but also “Access to Benefits, Pay Equity, Diverse Supply Chains, and Talent and Culture.”

Investors who understand this broader agenda are embracing investing with a gender lens, because as that Calvert report said, “you risk leaving money on the table if you don’t consider gender.” Impax, the sustainability fund manager, runs the Global Women's Leadership Index, rating 400 plus companies on "multiple criteria" of gender leadership. CEO, Ian Simm, told me he was looking to “unleash” female talent.

He is not alone. ‘Project Sage’, a Wharton Social Impact Initiative, tracks capital raised with a gender lens across private equity, venture capital, and private debt vehicles. This found it had quadrupled to $4.8bn in 2019 and that 138 fund managers were now investing with a gender lens.

Gender is particularly central to development financiers’ thinking at the moment. The United Nations has declared improving gender diversity to be one of its key social development goals (SDGs) and claims that 40% of the world’s women live in countries failing on gender equality. Nick O’Donohoe, the CEO of CDC, the world’s largest impact investor, told me “the Covid crisis re-enforces that our response to all the great global challenges needs to come with a gender lens.” He’s got together with the other G7 development finance leaders to form the 2X Challenge that has mobilized $4.5bn of capital.

These are all excellent initiatives. But at the same time, the ‘angels’ are in a minority. These sums are small in the context of the trillions of dollars of invested capital. And when I listen to some other mainstream investors’ strictures, I can’t help but suggest – “physician heal thyself.”    

To try to understand what’s going on I sat down with Debbie Clarke, the veteran fund manager, now Global Head of Investment Manager Research at Mercer’s. She cites many of the issues that are familiar checkpoints investors use in assessing companies when investing, but too often seem to fail to apply to themselves: a lack of proper parental leave, inflexible working arrangements, the absence of mentoring programmes. These are all crucial. Talent must be managed along the career path, and greater diversity comes from a considered approach at every stage – beginning with recruitment.

In their excellent guide to gender smart investing, CDC show just how important recruitment is. They suggest changing job descriptions to recruit ‘capabilities’, not experiences, and demystifying the skills needed for the role, ensuring language encourages both female and male applicants. They cite one venture capital fund who advertised for a “coding ninja” and received only male applicants. When they re-advertised for a software programmer, they received both female and male applicants. Another firm, RockCreek sensibly looks outside the traditional pools from which private equity talent is sourced and hires based on capabilities, including analytical problem-solving and quantitative analysis, instead of solely finance sector experience.

Monitoring the numbers in the recruitment process along career progression as a whole is vital. But the kind of detailed data analysis investors demand from companies is sadly often absent from their own management systems. The worst statistic of all is that female fund managers earn 69 cents on their male equivalent’s dollar.

In addition, Clarke believes it is necessary “to go beyond the data.” The number one obstacle to equality she cites is that amorphous thing “corporate culture.” She says Mercer is increasingly asking questions that seek to probe fund managers on this issue, and believes passionately that boards need better to understand the kind of culture “where women thrive.” Group think is the father of bad decisions. Investors need cognitive diversity, and identity diversity is part of this.

Let's not lose sight of the nasty side to this male-dominated culture. “I’m the tethered goat” a female financial peer once introduced herself to me as; a shocking case worth reading about, and just one of many appalling uses of language in finance. She told me how she had had to sell her house to bring a lawsuit.    

Is this history, or could it still happen today? Let’s start walking the talk.