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How Investor Activism Can Improve Board Diversity

By Melissa J. Anderson

“It makes sense for investors to get involved. Gender issues can have financial relevance, and there is plenty of research to back that up,” said Joe Keefe, President and CEO of PAX World Investments. Keefe believes that shareholders can and should demand more from the companies they invest in. PAX’s investing philosophy is built around driving change around sustainability and gender.

PAX just released a paper written by Keefe, Gender Equality as an Investment Concept, drawing together a decade of research on the strategic value of women in leadership roles at today’s corporations. “I was trying to really call attention to the fact that investors can make a difference,” Keefe said.

He explained, “I thought that if we better publicize that research, it will underscore the point that companies that do a better job retaining and advancing women are better companies. Investing in these companies is a smarter way to invest.”

Changing the Game and Investing Smarter

“There are not nearly enough women in the boards of Fortune 500 companies. People have been wringing their hands, saying ‘isn’t this terrible.’ But we can actually do something about this,” Keefe explained. “Corporations have to listen to their shareholders,” he said.

Investors can change the game for women in leadership, and as the research paper revealed, investors should do work to change the game.

Keefe says there are three things individual shareholders can do to to influence companies to improve gender balance. “A very promising strategy is that investors can say no to all-male public boards. Withhold support when you receive your proxies. Instruct your individual advisor or other representative to vote on proxies in a way that is consistent with your values.”

The second way for investors to change the game is to support companies that have adopted the UN’s Women’s Empowerment Principles, “practical tools and guidelines to promote gender equity,” he explained.

And third, he said, “Try to invest with advisors or mutual funds who understand the value of the gender lens.”

He added, “A lot of people have been working on this issue for a number of years, pressuring companies to adopt better diversity policies. But up to now, investors have not been very involved in the effort. Investors can help reach that tipping point toward a 50/50 gender balance.”

Drawing Connections

One common objection to the research showing a connection between leadership diversity and improved performance is that the studies are merely correlational – that just because performance seems to improve when there are more women at the top, that doesn’t mean gender diversity is the cause of the improvement.

Detractors say that efforts to promote leadership gender equality are therefore a waste of time and money. Keefe responded, “It’s not like the price earnings ratio causes growth. The traditional financial factors that investors look at are correlational to performance as opposed to causal.”

But, he continued, “I think there is enough data at this point to suggest women in senior management and on boards does have a positive impact on governance.”

He added, “Whether it is causal or correlational is not that important. The evidence points in that direction, and frankly, it’s just common sense.”

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