Backing, empowering and investing in women, will help your business bloom, here’s why:
As women continue to invest, they will continue to shape what has historically been a male-dominated and male-driven financial industry.
Women account for half of the world’s population. Yet, they are less prepared financially than men, with lower lifetime earnings, wage inequality, and reduced prospects for high-paying corporate management roles compared with men.
Soon, women will play a bigger role in the world’s wealth. They’ll take control of more baby boomer assets, and, increasingly, they take the role of family breadwinners. Not only are women expected to control much of baby boomer assets in the coming years, but more and more studies [1] have noted how women are also playing a larger role in household financial decisions and becoming family breadwinners. Yet, even as more women gain wealth, common stereotypes still loom large.
In studies of general financial knowledge, women are more likely to answer “I don’t know” than men [2]. This suggests women guess less frequently, but they also receive lower financial literacy scores: That is, you earn zero points for admitting ignorance but can sometimes eke out a few extra points for guessing correctly. The greater willingness to admit not knowing hurts women on financial literacy tests, but it may make them ideal clients.[3]
The willingness to say “I don’t know” suggests humility and openness to learning, which can contribute to a good advisor-client relationship. There is also evidence that, in some cases, women are better investors than men. A Fidelity study [4] of the behaviour of more than 5 million customers over 10 years showed that female customers earned 0.4 percentage points a year more than their male counterparts.
Increasing the number of women managers leads to better decision-making, moderates overconfidence, and curbs groupthink
Plenty of studies show the advantages of promoting gender diversity. Increasing the number of women managers leads to better decision-making, moderates overconfidence, and curbs groupthink. Indeed, Christine Lagarde, president of the European Central Bank, has said that more women in top roles at banks – if the signs read “Lehman Sisters,” for example – might have forestalled the financial crisis. [5]
Companies that are well-diversified attract younger and likeminded employees
Companies with high levels of gender diversity, and policies that promote it, are also likely to attract younger employees. They have higher levels of job satisfaction and retention, according to Catalyst, a non-profit that promotes workplace inclusion. The new investors, and employee base, are demanding that the companies they work for are well diversified, with established DEI policies.
Instead, what makes a difference is making sure the same opportunities for growth exist for all employees. What also matters is the degree of representation of diverse groups at multiple levels within an organisation that may contribute to lower employee turnover rates comparatively.
If companies provide employees with a pathway for advance in their career, regardless of their background; and the employees see more equal representation in leadership roles, they may be more likely to stay with a company longer. They may also be more engaged in what they do and motivated in their daily work. [6]
Investors are also paying attention to gender risk – and investing to improve it
One strategy to improve gender diversity and wage parity is so-called gender-lens investing.
Although being a small, but growing, corner of the investment universe, in many cases, the approach has paid off: The Morningstar Women’s Empowerment Index, which provides exposure to companies with strong gender diversity policies, has consistently outperformed the broad U.S. Market Index since its launch in 2018.
Gender lens investing has become a way for investors to put their money where their values are without necessarily sacrificing returns. And as more investors look for ways to make a positive impact with their investments, the industry is taking notice.
A McKinsey Global Institute report found that $12 trillion could be added to global GDP by 2025 by advancing women’s equality. The public, private, and social sectors will need to act to close gender gaps in work and society. [1]
Women in leadership positions are role models, and that is valuable
Women can use their experience and influence to create workplace environments and build business practices that support equal participation. Perhaps more importantly, they can be agents of change.
While it’s not women’s fault that financial services are overwhelmingly white and male, it is our collective responsibility to use our position in the room to hold the door open and invite in women of colour, men of colour, and other historically marginalized individuals.
Having a diverse staff complement protects your business against human capital risk
While more data and analysis are needed to prove the impact on a company’s performance, there is evidence to show that lack of gender diversity is a human capital risk that is a material ESG issue for companies and their investors.
In closing
Change happens when we challenge the status quo; dare to ask the difficult questions; explore beyond our own experiences; and refuse to accept inequity as inalterable.
[1] McKinsey and Company, “Women as the next wave of growth in US Wealth Management”. Data as at 29 July 2020.[2] Bucher-Koenen et. al, 2021
[3] Source: Morningstar; “Why Do Women Invest Less Than Men? Blame the Income Gap”. Data as at 25 February 2022.
[4] Source: Fidelity “Fidelity Investments Women & Investing Study 2021”.
[5] Source: Morningstar Special Report “How women are breaking the bias in 2022”; Data as at 28 February 2022.
[6] Source: Morningstar “Quotas for women aren’t enough to-protect against human capital risks”. Data as at 28 February 2022.
[1] Source: McKinsey Global Institute “How advancing women’s equality can add $12 trillion to global growth”. Data as at 1 September 2015.
Author
Victoria Reuvers, Managing Director at Morningstar Investment SA
