Investors seeking to maximize their return on investment tend to look beyond factors like annual reports and financial statements. Many investors are now looking to put their money towards socially conscious investments and taking into account factors such as gender diversity. In addition to promoting necessary social change, prioritizing gender diversity likely produces tangible benefits and better corporate returns.
Here are some of the reasons why gender diversity is an important consideration for business owners, executives, and investors alike.
Upholding gender diversity policies is not just optional – it’s necessary
Most publicly traded companies now have gender diversity policies in place. On December 31, 2014, most of the securities regulatory authorities across Canada implemented Rule Amendments to National Instrument 58-101 Disclosure of Corporate Governance Practices and Form 58-101F1 Corporate Governance Disclosure.
The amendments are intended to increase transparency for investors and other stakeholders regarding the representation of women on boards of directors and in senior management. This transparency is intended to assist investors in making investment and voting decisions and will apply to all non-venture issuers reporting in the participating jurisdictions.
The Rule Amendments requires non-venture issuers to provide annual disclosures on:
- Policies regarding the representation of women on the board,
- The board’s or nominating committee’s consideration of the representation of women in the director identification and selection process,
- The issuer’s consideration of the representation of women in executive officer positions when making executive officer appointments,
- Targets regarding the representation of women on the board and in executive officer positions,
- The number of women on the board and in executive officer positions, and
- Director term limits and other mechanisms of renewal of the board.
Failure to uphold the “comply or explain” rules set by the Canadian Securities Administrators (CSA) may have consequences on both the business dealings of companies and their public relations.
Gender diversity yields stronger financial results
According to Delivering through Diversity (2018) by McKinsey & Company, companies in the top-quartile for gender diversity on their executive teams were 21% more likely to have above-average
profitability than companies in the fourth quartile. For ethnic/cultural diversity, top-quartile companies were 33% more likely to outperform on profitability.
Research also shows that diverse board membership enhances company performance and market reputation. The greatest financial benefits of diversity come when there is between 40% and 60% female representation in the C suite and on boards.
Technology companies are notorious for lacking gender diversity, but there are signs that Silicon Valley is becoming more inclusive. For instance, in July 2017, the leading electric car manufacturer Tesla welcomed Ebony Media CEO Linda Johnson Rice to the board, who is the second woman out of a group of nine board members and the first African-American to hold that role.
Considering ESG factors may lead to smarter investments
More and more investors are looking at ESG (environmental, social and governance) factors when thinking about where to put their money. These factors not only appeal to the conscience, but they also play a part in helping your stocks be “future-proof”.
Whether looking into investing in a mutual fund or an emerging industry like the clean technology, investors need to do their due diligence. In addition to companies’ logistics of production and five-year business plans, gender diversity should also be a decision-making factor for investors. Companies that lead in gender diversity tend to perform well with regard to other indicators of success.
Gender diversity will position companies for the future
Whether you are starting or operating your own company, or simply looking to invest in one, gender diversity should be high on your list of considerations. Organizations that encourage a diverse workforce at all levels of their business are more likely to prosper and endure as they reflect the reality of a diverse marketplace. An ETF may help provide access to the gender diversity theme through a diversified portfolio.
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