Is Performance and Gender Diversity Linked?

Management boards are slowly becoming more diverse, but is this improving performance?

Sunniva Kolostyak 22 October, 2021 | 9:58AM
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Gender symbols on grey background

Does gender have anything to do with a stock’s performance? It’s hard to tell; companies have largely been run by men for the past hundreds of years, providing few opportunities for comparisons until fairly recently.

Some companies are making conscious efforts to diversify their boards, and women now hold about one in three boardroom roles at the top 350 companies in the UK. But, efforts to increase diversity remain voluntary, and the number of female executives is significantly lower than males, making up 6% of the FTSE 100.

However, Morningstar is helping shed light on the matter. We have recently started measuring gender diversity to help investors evaluate officers and boards of directors of public companies. So we are asking, what is the current situation, and is there a link between performance and having a diverse management?

Gender Diversity Data

Our data on gender diversity covers the UK, US and Canada so far. It provides a binary view of male and female executives (president, chief executive officer, chief financial officer, chief operating officer, and chief accounting officer) and directors (board members). For ease, we are looking at both executives and directors in a combined group.

To start off, we screened for the performance of companies with different construction: an all-male management, between 1-49% female managers, an exact 50/50 split, and 50%+ female (there are no all-female company leaderships on the London Stock Exchange). However, it is hard to tell whether there is a strong relationship between increased diversity and share price performance.

So far this year, stocks with an exact 50% split in male and female execs and board members have had the best performance. Overall, they have returned an average of 33.56%, while the average for other groups hovers around 22%.

This category has also performed the best over a three-year period, returning 7.52% while the average is 2.09%.

The all-male management category seems to be the most volatile. Overall, these companies had a stellar 2020, returning 51.28%, but the three-year average is only 1.28%. On the other hand, the companies with a female majority seem to be slightly less risky, and moving in the opposite direction. While year-to-date returns are fairly equal across the board, it has a significantly lower 2020 return at 5.76%, but over the longer term, the companies have had significantly stronger growth than the average (13.46% vs 4.78%).

But, using the percentage of female executives and directors as a metric might not be the most representative way to display the relationship with performance, as there is a large disparity between the number of stocks in each category. For example, there are 384 companies with 0 female executives or directors – that’s about 31% of all listed companies in the UK.

The 1% and 49% female representation category contains 790 stocks, or 65%. This leaves about 4% for companies with a 50/50 split or higher. And as previously mentioned, not a single UK company is all-female – Moneysupermarket.com and Ascential have the highest percentages, both with 66.67% female management. Moreover, there are more companies with an exact 50% split than majority female (30 and 20 stocks respectively).

Split into deciles, the lowest group still accounts for the most companies with 385 listed stocks (i.e. all the companies with no women plus one company with 1 female executive). 215 companies have between 10-20% representation at management level and together, the two categories account for 50% of all UK stocks. At the other end of the scale, only 163 companies have 40% female representation or more, making up about 10% of all UK listed companies.

So looking at the visualisation of all companies’ three-year annualised returns, we can see that the 4.78% average for all stocks does not represent the spread, which ranges from -79.56% for Keystone Law Group to 291.49% for Eurasia Mining (both all-male). There does seem to be slightly less volatility as female representation increases, however, the number of stocks are decreasing too.

The difference in companies with less than 50% and more than 50% female executives and directors is also clear. Whether the few companies with more women leaders are able to provide an accurate picture of the relationship with performance is uncear - but what is clear is that there is room for improvement.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Sunniva Kolostyak  is data journalist for Morningstar.co.uk