When a company treats its pregnant workers well it can actually strengthen its business. Good maternity leave not only lowers costs, as studies have found, but can even boost a company’s stock price, new research from Morgan Stanley finds. Not only that. Companies with greater gender diversity have better performing stocks, according to the analysis, which updates similar findings from earlier this year.
The findings were so compelling that Morgan Stanley now uses gender diversity to rank stocks, along with more traditional measures.
“This isn’t just some marketing fluff to make us look good,” Adam Parker, an equity strategist at the bank who coauthored the study told The Huffington Post. “This is now impacting the investment advice we’re giving our clients.”
Put another way, a major bank now sees that feminism is a core part of making money. The findings come as more and more businesses are offering more parental leave to their employees and paying attention to gender equality issues.
Parker said an increase was notable in 2015 and showed up in the bank’s findings. The study should provide more ballast to those advocating that the U.S. needs to joined the rest of the world and mandate paid leave through federal law.
For its report, Morgan Stanley analyzed about 1,600 public companies around the world and considered five measures to rate gender diversity: the percentage of women at the top, gender pay equity, work-life benefits and leave and diversity policies. The bank found that the stocks of companies that ranked high on gender diversity performed better ― they were less volatile, didn’t jump around as much and increased in value at higher rates.
The stocks of gender diverse companies also have slightly higher profitability, Parker said.
Looking at gender diversity is “a new and better way of investing,” he said.
The bank’s findings are part of a wider body of research that has shown over the years that firms with more women perform better. Companies where women hold at least 30 percent of leadership roles see profits go up by about 15 percent, according to one study of over 22,000 companies released last year. When more women sit on a company’s board, it also does better, research from the women’s nonprofit Catalyst has found. McKinsey has also found that companies with greater gender and ethnic diversity have higher financial returns.
The Morgan Stanley findings are notable because they look beyond the boardroom and include things like maternity leave and flex work policies. Taken together these could provide a more robust sense of whether women are treated equitably at work.
So for example, gender-diversity ratings were not necessarily higher for companies where there are quotas on the percentage of women in the boardroom, Parker said. In Japan there are very good work-life programs and generous maternity leave, but there are almost no women leaders at its biggest companies, he pointed out.
Why more diverse companies perform better isn’t definitively known but intuitively it makes sense that companies are better served when they’re making decisions based on a wider range of view points. (No one is arguing an all-female company would be ideal.) For consumer-facing companies, gender diversity is key to understanding their customers.
The Morgan Stanley study didn’t look beyond the numbers: So we don’t know if diversity causes business success or if success leads companies to work harder on diversity.
If you look at a company like Google, which ranks high for work-life, leave and diversity policies, you can see a mix of forces at work. The company was already financially successful in 2007 when it increased the amount of maternity leave on offer to 18 weeks, but after it did that the rate at which new mothers quit the company fell by 50 percent.
“Mothers were able to take the time they needed to bond with their babies and return to their jobs feeling confident and ready,” Susan Wojcicki the YouTube CEO and a former Google employee wrote in the Wall Street Journal. “And it’s much better for Google’s bottom line — to avoid costly turnover, and to retain the valued expertise, skills and perspective of our employees who are mothers.”
Parental leave naysayers like to point out that the cost calculations of offering generous leave are different for the non-Googles out there ― small businesses can’t afford to be so magnanimous.
They have a point. That’s why most paid leave advocates recommend government policies that spread the cost of leave around. In California, which has already mandated leave, companies have found the program to be just fine ― in some cases boosting their profitability.