Mar 13, 2017

Board diversity good use of passive voice

Despite evidence that inviting more women into the boardroom can improve performance, corporate America has been slow to react
A statue of a girl facing the Wall St. Bull is seen, as part of a campaign by U.S. fund manager State Street to push companies to put women on their boards, in the financial district in New York, on March 7. REUTERS/Brendan McDermid

 By Tom Buerkle

NEW YORK (Reuters Breakingviews) -- State Street is making good use of a passive voice. Despite evidence that inviting more women into the boardroom can improve performance, corporate America has been slow to react. The giant asset manager on Tuesday initiated a campaign urging companies to diversify and threatened to run proxy fights if they refuse.

There’s no causal link, but a growing body of research is compelling. A December paper by index group MSCI, for example, found that U.S. companies with at least three women on the board had median gains in return on equity of 10 per cent and grew earnings per share by 37 percent between 2011 and 2016. The respective figures for companies with no female directors were one per cent and minus eight per cent.

Likewise, a February 2016 Peterson Institute study discovered that companies where women held at least 30 per cent of senior management positions enjoyed 15 per cent higher net profit margins than the average.

U.S. businesses also lag international rivals in gender diversity. Nearly a quarter of S&P 500 Index constituents have fewer than 15 per cent of board seats occupied by women, versus 11 per cent of constituents in the FTSE 100 index, according to Institutional Shareholder Services. For all listed companies, the proportion missing the mark rises to 63 per cent in the United States and 55 per cent in Britain.

A fund manager of State Street's size can’t just dump shares of companies with corporate governance it doesn’t like, however. Some four-fifths of its $2.5 trillion under management tracks indexes. Yet even a usually quiet investor can speak up on occasion.

State Street adopted a similar strategy three years ago to push companies to usher out entrenched board members. In 2015, it voted against or withheld votes from directors at 380 companies. One-third of them refreshed their boards the following year.

Of course, State Street probably can appreciate how hard it is to diversify. Only three of its 11 board members are female, and two of them have been serving for more than a decade. With so much money pouring into index and exchange-traded funds, it’s more important than ever for otherwise muted investors to get pushy when they can.



- State Street Global Advisors on March 7 unveiled an initiative to increase the number of women on corporate boards, citing studies showing that companies with greater gender diversity tend to have stronger financial performance and fewer governance-related problems.

- The $2.5 trillion asset manager said that although most companies support gender diversity in principle, common practices such as relying on existing director networks for candidates and requiring nominees to have chief executive experience limit female participation in practice.

- Boston-based State Street said it would engage with companies to ensure that boards have some female directors, and to promote greater gender diversity in senior management ranks.

- "In the event that companies fail to take action to increase the number of women on their boards, despite our best efforts to engage with them, we will use our proxy voting power to effect change – voting against the Chair of the board’s nominating and/or governance committee if necessary,” the firm said.

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