In celebration of International Women’s Day, we wanted to highlight five ways to analyze gender diversity in the markets.
Goldman Sachs recently announced that it will take only companies with at least one diverse board member public. This decision is in line with what we saw from State Street Global Advisors in 2017, a California law enacted in 2018, and legislation from other countries over the past two decades. We looked at the first countries that imposed gender quotas for boards of directors to gauge the gender diversity of the constituents of their major indices.
|
Country |
Quota |
Passage Date |
Sanctions? |
Index |
Percent of Female Directors |
|
Norway |
40% |
December 19, 2003 |
Yes – Refuse to register board; dissolve company; fines until compliance |
Norway OBX |
36.6% |
|
Spain |
40% |
March 22, 2007 |
Yes – Lack of gender diversity will impact consideration for public subsidies and state contracts |
IBEX 35 |
25.1% |
|
Finland |
40% |
April 15, 2005 |
|
OMX Helsinki 25 |
33.4% |
|
Israel |
50% |
March 11, 2007 |
|
Israel TA-125 |
21.2% |
|
Iceland |
40% |
March 4, 2010 |
|
OMX Iceland 10 |
46.1% |
|
Kenya |
33% |
August 28, 2010 |
|
FTSE Frontier Kenya |
24.3% |
|
France |
40% |
January 13, 2011 |
Yes – Fees will not be paid to directors |
France CAC 40 |
41.8% |
|
Italy |
33% |
June 28, 2011 |
Yes – Fines; directors lose office |
FTSE MIB |
33.9% |
|
Belgium |
33% |
June 30, 2011 |
Yes – Void the appointment of any directors who do not conform to board quota targets; suspend director benefits |
BEL 20 |
33.8% |
Sources: FactSet, Journal of Business Ethics
We can see that of the nine countries that have had almost a decade to comply with quotas, only four have. Additionally, we found that the major index for each country was more gender diverse than the universe of all companies in those countries. One possible explanation for this difference is that companies in the major index are subject to greater scrutiny than other companies.
We wanted to evaluate whether female representation on company boards was reflective of female representation in other capacities. Using data from the World Bank, we compared the percentage of seats held by women in national parliaments with our company board data. We found a .58 correlation between the percentage of female board members (for companies with market values greater than $2 billion) and the percentage of seats held by women in national parliaments for the 30 largest countries (measured by nominal GDP in USD).
Half of the countries that have imposed gender quotas on boards appear on the list of the 20 countries with the most female representation in their national parliaments. The highest country on the list that also has a board quota is Spain, where the bicameral Cortes Generales has 615 members, 47.4% of whom are women.
|
Number |
Country |
Percent of Seats Held by Women in National Parliaments |
|
1 |
Rwanda |
61.3 |
|
2 |
Cuba |
53.2 |
|
3 |
Bolivia |
53.1 |
|
4 |
Mexico |
48.2 |
|
5 |
Spain |
47.4 |
|
6 |
Sweden |
47.3 |
|
7 |
Finland |
47.0 |
|
8 |
Grenada |
46.7 |
|
9 |
Namibia |
46.2 |
|
10 |
South Africa |
45.7 |
|
11 |
Costa Rica |
45.6 |
|
12 |
Nicaragua |
44.6 |
|
13 |
Belgium |
42.0 |
|
14 |
Senegal |
41.8 |
|
15 |
Norway |
40.8 |
|
15 |
New Zealand |
40.8 |
|
17 |
France |
39.7 |
|
18 |
Mozambique |
39.6 |
|
19 |
Austria |
39.3 |
|
20 |
Macedonia |
39.2 |
Source: World Bank
In 2019, an average of 22.6% of national parliament seats was held by women in the 184 countries for which the World Bank reports this metric. The United States ties with Montenegro at number 76 in the world. Both countries are at 23.5%, which places them slightly above average. This percentage has doubled over the past two decades in the U.S. and the last decade in Montenegro.
California passed a law in 2018 that requires all public companies to have at least one woman on the board of directors to advance equitable gender representation. Having a woman on the board is one step towards increased gender diversity, but what about the company leader, the CEO?
Of the 500 companies in the S&P 500, only 30 (6%) have female CEOs as of 2019. If we look at the Russell 2000, the numbers are similar; out of 2000 companies, only 121 (6%) companies have female CEOs. Out of the 3000 companies in the Russell 3000, only 171 (6%) companies are run by women. Over 50% of the companies across all these indices have at least one woman on the board, but when it comes to CEOs, women seem to be capped at just 6% of the active CEOs. The table below breaks down the number of women CEOs by industry in the S&P 500.
|
S&P sector |
Number of Women CEOs in the S&P 500 |
|
10 Energy |
1 |
|
15 Materials |
1 |
|
20 Industrials |
3 |
|
25 Consumer Discretionary |
5 |
|
30 Consumer Staples |
1 |
|
35 Health Care |
3 |
|
40 Financials |
5 |
|
45 Information Technology |
6 |
|
50 Communication Services |
0 |
|
55 Utilities |
3 |
|
60 Real Estate |
2 |
|
Total |
30 |
Sources: S&P, FactSet
In the past, we found that the average and median CEO compensation remains the same regardless of that executive’s gender for Russell 3000 constituents. The S&P 500 index accounts for over 95% of the market capitalization of all U.S. publicly traded stocks, so we used this universe to examine whether compensation is still comparable. We found that CEO compensation is similar across genders for CEOs of S&P 500 companies, both for the base salaries disclosed in the company filings and the salary calculated by ISS ESG.
|
|
Average Disclosed Base Salary |
Average ISS Executive Compensation Base Salary |
|
Male CEOs |
$1,109,082 |
$1,169,646.5 |
|
Female CEOs |
$1,128,058 |
$1,160,919.1 |
Source: ISS ESG
However, once we dove into non-salary executive compensation, there are noticeable differences in terms of how male and female CEOs were compensated in the 2018 and 2019 fiscal years. We used the ISS Executive Compensation data to view the total compensation breakdown.
|
Compensation |
Percent of Male CEOs |
Percent of Female CEOs |
|
Annual Cash Bonus |
13.1% |
2.9% |
|
Annual Non-Equity Incentives |
92.4% |
88.2% |
|
Long-Term Non-Equity Incentives |
9.4% |
5.8% |
|
Option Awards |
50.3% |
41.1% |
|
Stock Awards |
91.4% |
85.2% |
|
All Other Perquisites |
98.4% |
91.2% |
|
Pension/Retirement Benefits |
32.7% |
14.7% |
Source: ISS ESG
The biggest discrepancies are with executives’ annual cash bonuses and pension/retirement benefits. Ulta Beauty CEO Mary N. Dillon was the only female CEO to be compensated with an annual cash bonus in the last two fiscal years, as compared to 81 male CEOs who received an annual cash bonus during that time.
We also wanted to see whether alleged gender inequality was equally prevalent at companies with female and male CEOs. RepRisk identifies material ESG and business conduct risks related to companies. It offers a “gender inequality” tag that indicates unfair benefits or treatment in the workplace for individuals wholly or partly due to their gender, including limited access to resource and opportunities depending on the person’s declared gender.
The data suggest that companies with male CEOs have more risk associated with gender inequality than companies with female CEOs. Since 2018, 13 companies with female CEOs have had 18 risk incidents associated with gender inequality in RepRisk’s ESG Risk Platform, whereas 116 companies with male CEOs have had 203 risk incidents associated with the same tag. This indicates a ratio of 1.75 incidents per CEO for male-CEO-led companies, compared to 1.38 for female-CEO-led companies.
Each risk incident gets a score for severity (harshness of the risk incident or criticism), reach (influence of the source), and novelty (of the issues addressed for the criticized company). The five companies with the highest count of gender-inequality-related risk incidents overall were Nike, Google, Uber, Microsoft, and Shinhan Financial Group Co, Ltd., while the only company to have very severe risk incidents associated with gender inequality was Planet Fitness. All six of those companies are led by male CEOs.
There appears to be a penalty for companies with gender inequality risk incidents. Since December 31, 2017, the FactSet Market Indices World index has seen a total return of 1.4%, while the total return for the 130 companies with gender-inequality-associated risk incidents was -3.1%.
Mackenzie Hargrave, Sara Potter, CFA, and Sharon Yang also contributed to this article.