This piece was co-authored by Julie Gorte, Senior Vice President, Sustainable Investing at Pax World, and Heather Smith, Lead Sustainability Research Analyst at Pax World.
The New York Times this week printed a DealBook column with the lightning-rod title, "Do Activist Investors Target Women C.E.O.s?" It's a provocative question, but it's a stretch to imagine that it would merit serious consideration. Activist investors have to have some legitimate financial reasons to go after companies, and if it all came down to "hey, there's a woman in charge" they would very quickly lose their power to make news, much less change companies. Right or not, investor activism on companies like Hewlett-Packard, General Motors, Pepsico and Yahoo is largely motivated by financial and management issues as opposed to a campaign to oust or undermine women.
The piece does raise some interesting issues though. An article last August in the Guardian pointed to the fact that 38 percent of women CEOs have been forced out of large companies, compared with 27 percent of men, in the previous ten years. It also noted that academic research by Ali Cook and Christy Glass of Utah State University had advanced the idea that companies in trouble were more likely to appoint minorities or women as CEOs, possibly because women and minorities are more likely to accept such positions as they may perceive them to be their only chance to get into the corner office.
Perhaps women are more likely to take up the reins at companies that are in trouble because they are still denied opportunities for more prestigious, or at least less risky, CEO and C-suite positions. There is certainly evidence that the playing field between men and women is not yet level. At the current rate of change, it is estimated it will be decades before women achieve parity in corporate boardrooms in the US, and it could be even longer before that happens among the ranks of CEOs, as the number of female CEOs within the Fortune 500 has hovered from 2.4 percent in 2007, 2008 and 2011 to a high of 4.8 percent in 2014. Throughout the world's major economies, there remains a persistent and troubling pay gap between men and women.
Yet there is no reason to think that talent is distributed this unevenly between the genders. If it were, we wouldn't continue to see evidence that putting women in positions of power is associated with better financial performance. Credit Suisse found that companies with more female managers had higher price/book value ratios than companies with none. A recent study by McKinsey found that companies in the top quartile of gender diversity were likely to achieve superior financial returns compared with the median in their industry and domicile. As long as women are viewed as having to be superstars in order to achieve what men can, companies will be unable to achieve the value creation they are capable of, and that will continue to trouble investors.
There's good evidence to support that the fact that adding women to executive teams is good for investors. Credit Suisse, in its landmark report last year on women in senior management, found that companies headed by women do exhibit somewhat higher risk when measured by certain debt ratios, but that these levels were "by no means troubling." In fact, in response to the DealBook column, Bespoke Investment Group was quick to point out that the S&P 500 companies with women CEOs actually outperformed those led by men over the past year. Bespoke also notes that companies run by women have lower valuations than their male-led counterparts, which could explain, in-part, the interest from activist investors.
The real story here is one we've heard before, but it's still just as pertinent as ever: women have much to contribute to the creation of financial and economic value. We just need to get past our biases and longstanding discriminatory habits to make that happen.