It has been more than three years since I first began hearing rumblings from women on Wall Street: They wanted to find a way to create investment vehicles that would put money to work in companies led by women or that had an above average number of women on their boards.
The theory wasn’t that women were better at running businesses than men were. It was rather that having more diverse boards would generate more far-ranging and fruitful discussions. Similarly, the odds that a group of top executives will really add value — spotting new business opportunities ahead of rivals, for instance — may well go up if that group has a wide range of background and experience.
The problem was that if the rest of America is still far from a land of equal opportunity, corporate America can look like a holdover from the days of Mad Men. Especially at the top of the heap. Consider, just for starters, that of the companies in the S&P 500 index, only 22 have female CEOs today — and that just may be a record. Three years ago, women CEOs in the S&P 500 numbered only a dozen, and their ranks were shrinking.
Even better, if you look at how those companies have performed this year, the track record is encouraging. More than two-thirds — 14 of the 22 companies — have beaten the S&P 500’s 18.72 percent gain over the last 12 months, with nine of them outperforming by at least 50 percent.
Little wonder, then, that Sallie Krawcheck — one of the top women on Wall Street, former head of wealth management at both Citigroup and Merrill Lynch —is throwing her weight and her name behind an investment vehicle that will direct assets to companies that put women in leadership positions, the Pax Ellevate Global Women’s Index Fund.
Not to be left behind, Barclays — a bank that realizes very clearly just how much wealth is in the hands of women, and how many women make household financial decisions — has created its own product, the Women in Leadership Index, and an exchange-traded note that made its debut Thursday designed to track 85 companies with significant numbers of women on their boards and in senior management positions (and that meet certain other criteria of a more financial nature.)
Before you embrace this financial feminism wholeheartedly, ponder these points:
First of all, the recent history isn’t conclusive. True, Fortune magazine has calculated that over their tenure, women CEOs have seen their companies’ shares outperform the S&P 500. But investors don’t always measure their own returns according to CEO tenure. Look those companies that had women CEOs back in 2011 (and include Hewlett Packard and Gannett, which named women as CEOs, as well as Avon, which had two different women in the top job over the following three-year period). The S&P 500 gained 45 percent in the three years starting in 2011. Of the nine companies that had female CEOs then and still have them today, four managed to beat the index and only three — retailer TJX Companies, KeyCorp and Gannett — did so decisively.
There is a lot of research about the performance of companies that have more women on their boards – indeed, companies that have a greater degree of board diversity in general. It, too, shows there are arguments in favor of adding women to boards: Their presence tends to be associated with a higher return on equity and price to book value. But some data suggest that it is simply that more successful firms tend to appoint more women. Research has also identified a tendency on the part of institutional investors in the past to sell shares of companies run by women — gender bias, pure and simple.
Differentiating cause and effect, correlation and causation, bedevils anyone who wants to try to evaluate these new products purely as investments, rather than as another way to support women’s issues or a social statement, where you’ll tolerate higher fees and expenses (a near certainty) and the possibility of lower returns.
It’s pretty easy to figure out when a women’s absence is making a difference. Consider the case of diet company Nutrisystem, which added former NFL quarterback and Hall-of-Famer Dan Marino as a spokesman back in about 2006. That got the phones ringing with prospective male clients, certainly. The problem? About 75 percent of the weight loss industry’s clients are women, who just don’t relate to a former pro football player’s weight struggles. Nutrisystem gained market share among men, lost it to rivals among women. Was it a coincidence that the company didn’t have a single woman on its board?
Anne Sheehan, director of corporate governance at the California State Teachers’ Retirement System, with whom I chatted about this a few years ago, didn’t think so. That’s why she and her colleagues targeted Nutrisystem as one of eight companies they thought should diversify their board. “We pointed out the obvious: that their customers and target market were almost all women; that their board — which renders the final decisions on business strategy — was all male,” Sheehan says. Within months, Nutrisystem named a woman to its board. Today, two of its eight board members are women. It has also dramatically outperformed its publicly traded rival, Weight Watchers over the last three years. NutriSystem’s stock has edged 21.2 percent higher, while that of Weight Watchers has plunged 74.2 percent.
But proving that or any other good outcome is the result of having boardroom and executive diversity, rather than any other factor, remains a matter of faith as much as evidence. For now, there remain more questions than answers…which means it’s probably wise to approach these new products with a degree of caution.
Whatever the data has suggested in the past, there’s no guarantee that this will be a winning strategy in future, if you’re simply in quest of financial profits. If your goals are broader — to send a message to corporate America that you, at least, are willing to put your investment dollars behind diversity, well, that’s another matter altogether.
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