Dive Brief:
- Companies with more gender-balanced workforces outperformed their country and industry peers with less-balanced labor divisions by 29% per year between 2013-2022, according to a BlackRock report published last week.
- BlackRock also found increased gender diversity across corporate ranks reflects financial materiality and investing in companies with more women-friendly cultures may boost performance. Companies where middle management mirrors women’s representation in the overall workforce generated 0.36% higher risk-adjusted monthly returns compared to competitors who perform poorly on this diversity metric.
- The study surveyed companies from the MSCI World Index — which tracks the performance of large and mid-cap companies across 23 countries — and found that female CEOs have outperformed companies run by men. However, the post is predominantly held by men, and women only made up 7% of U.S. CEOs in 2022.
Dive Insight:
The New York-based firm, which manages over $9 trillion in assets, said better disclosure and further standardization of metrics will help improve understanding of the financial linkages between workforce diversity and material returns. The report called the “human capital aspect of corporate assets” an “increasingly relevant” factor from an investment perspective.
“We expect disclosures to improve as human capital and diversity metrics become more established as drivers of financial performance and investment decisions,” the report said.
This assessment mirrors a growing demand for disclosures on the social or “S” aspect of ESG, with statewide and nationwide human capital related regulations picking up momentum. Last month, California passed Senate Bill 54, which pushes for more diversity-related disclosures from investment firms while the Security and Exchange Commission’s Investor Advisory Committee proposed a new rule in September that would require publicly traded companies to disclose more robust data regarding their workforce and human capital management, including compensation ranges, employment status and workforce demographics.
BlackRock’s study said women are often faced with the obstacle of a “persistent glass ceiling,” making it challenging for them to ascend to the very top ranks, and diversity deteriorates across companies’ higher management ranks. The findings also noted cross-country variations in the prevalence of women CEOs: Nordic countries — Finland, Norway and Sweden — and Singapore have the highest women’s representation, while Spain, Italy and Israel have none. The U.S. is positioned in the middle.
The firm’s research also outlined evidence that showed overweighting companies closing the gaps in women’s representation at higher ranks in portfolios leads to higher returns. Analysis based on the findings indicated a hypothetical long-short portfolio maximizing women’s promotions would generate 0.72% higher returns per year over the past four years. Additionally, the research concluded promoting women is also associated with lower employee turnover rates, which is important for a company’s long-term performance.
The report, however, noted that it was optimal to not have over or under representation of either women and men. From the company portfolios analyzed by BlackRock, neither companies with the lowest women’s representation of women (16% on average) nor companies with the highest representation of women (60% on average) in the workforce yielded top performances over the last decade. Instead, companies that sat along the middle quintile of the diversity spectrum outperformed their peers, across time and on a long-term average.
Researchers and experts at the asset management firm also examined links between employee policies and financial performance and found incorporating the length of average maternity leave serves as a good determinant for how companies fared. BlackRock surveyed 80 U.S. companies from 2016-2021 on this metric and found companies where women took longer maternity leaves outperformed those with shorter recorded instances of time off for caregiving.
Further, the length of maternity leave demonstrated a positive correlation with employee sentiment. Companies where women can take longer maternity leaves tend to have more satisfied employees, according to the report.
