Category: April 2015 – Women & Investing

The business case for gender diversity is now well documented. The research is compelling: when women are at the table – and better yet, in leadership positions – companies simply perform better.

A 2014 Credit Suisse study of 3,000 companies assessing the level of women in senior management found that more diversity in management coincides with better corporate performance and higher stock market valuations.¹ A 2014 Thomson Reuters report concluded that, on average, companies with no women on their boards underperformed relative to gender-diverse boards and had slightly higher tracking errors, indicating potentially more risk.² A 2012 Credit Suisse report found that companies with women directors outperformed those without women directors in return on equity, average growth and price/book value multiples.³ A Catalyst study found that companies with three or more women directors outperformed those with no women directors as measured by return on equity, return on sales and return on invested capital,⁴ while McKinsey found that more diverse management teams deliver higher returns for shareholders across industries.⁵

Women bring diverse perspectives to the table, their leadership style can drive more innovation and collaboration, they are more likely to ask tough questions, and they often take a different approach to risk. It’s not that women or men are “better” but that diverse groups—where both men and women are at the table—make better decisions than non-diverse groups. Indeed, the research suggests that where gender diversity reaches a critical mass of three or more women on a board (roughly 30%), governance improves and so does financial performance.

With the business case for advancing women so clearly documented, the case for investing in companies that are leaders in promoting gender diversity has likewise become self-evident. Moreover, as the investment case strengthens, the risks of not investing in women are becoming apparent as well. Businesses that fail to embrace gender diversity on their boards and in upper management limit their own ability to grow and place their shareholders at a disadvantage.

Yet despite the powerful business case for women’s advancement, gender inequality stubbornly persists. Today only 12 percent of board seats and 11 percent of senior management positions globally are held by women.

How do we change this? And how do we respond to the growing demand among investors to be a part of this change?

A recent Center for Talent Innovation report found that 90 percent of women said that “making a positive impact on society” is important to them, and 77 percent said they want to invest in companies with diversity in leadership.⁶ Clearly, women want to invest in companies that advance women and produce other positive societal outcomes. They want their investment dollars to be part of the solution, not part of the problem.

We also need to be listening more to the “power of the purse,” and recognizing the powerful economic force that women represent. Women control 27 percent of the world’s wealth.⁷ They are the breadwinners or co-breadwinners in two-thirds of American households. In the U.S. alone, women exercise decision-making control over $11.2 trillion – that’s a whopping 39 percent of the nation’s estimated $28.6 trillion of investable assets.⁸ They already are responsible for 83 percent of all consumer purchases; they hold 89 percent of U.S. bank accounts and 51 percent of all personal wealth. As Newsweek reported in 2010, “women are the biggest emerging market in the history of the planet.”⁹

Our companies, Pax World and Ellevate Asset Management, have joined together to offer investment strategies that are responsive to these trends.

Ellevate Asset Management was formed to direct investor capital to companies that actively embrace gender diversity. It is owned by one of us (Sallie), who also owns Ellevate Network (formerly “85 Broads”), the global professional women’s network, which provides women with networking and educational tools that can be important to their success. Pax World has long been a leader in sustainable investing, and in particular, in investing with a gender lens and engaging companies to increase gender diversity and advance women’s leadership.

In our view, investors are a key constituency for promoting gender diversity in publicly traded companies. After all, it is shareholders who own these companies, and corporate boards are in place to represent the shareholders. If diverse leadership teams perform better than non-diverse leadership teams, then it is in the shareholders’ interest, and it is the board’s duty, to promote greater gender diversity in company management and on corporate boards.

There are a few basic steps investors and their financial advisors can take, first, to promote gender diversity on corporate boards and, second, to invest in companies that are advancing women.

Regarding board diversity, investors actually have the opportunity to say “no” to all-male corporate boards each and every year when companies send out shareholder proxies in advance of their annual general meetings. Although most investors don’t vote their proxies directly, they can take steps to assure that whoever does vote their proxies—be it their financial adviser, mutual fund or retirement fund—withholds support from all-male boards.

Since 2010, Pax World has voted against or withheld support for director nominees at more than 800 companies due to insufficient gender diversity and has then registered its concern by writing letters to the companies explaining its votes. Many sustainable investing firms like Pax World take a similar stance, and more investors are joining this effort. If you agree that women should be better represented in corporate boardrooms, but your proxies are still rubber-stamping all-male corporate boards, you have the opportunity to stop being part of the problem and start being part of the solution.

Just as importantly, investors now have the option of investing in companies that have embraced gender diversity on their boards as well as in executive management. That’s why we launched the Pax Ellevate Global Women’s Index Fund (PXWEX), which invests in the highest-rated companies in the world for advancing women. Companies are ranked based on representation by women on their boards and in executive management, as well as other indicia of gender leadership.

One hundred percent of the companies in the Pax Ellevate Global Women’s Index Fund have a woman on their board while 99 percent have two or more women.

Significantly, evidence shows that when women’s representation on boards reaches a “critical mass” of three or more women—or 30 percent of an average-size board—governance improves and companies perform better. Women hold 32 percent of the board seats of companies in the Pax Ellevate Global Women’s Index Fund (vs. a global average of 12 percent) and 73 percent of the companies in the Fund have three or more women on their board (vs. 13 percent globally). Further, 25 percent of executive management positions of companies in the Fund are held by women (vs. a global average of 11 percent). Investors now have the opportunity to invest in these “critical mass” companies.

Investors, in other words, now have a choice. If you believe, as we do, that gender equality matters, you can now put your money to work doing something about it.

Article by Joseph F. Keefe, CEO, and Sallie L. Krawcheck, Chair, Pax Ellevate Management LLC. (See their full biographies below).

About Pax Ellevate Management LLC

The Pax Ellevate Global Women’s Index Fund, managed by Pax Ellevate Management LLC, is the result of a partnership between Pax World Management LLC and Ellevate Asset Management LLC, whose principal is Sallie Krawcheck. Pax and Ellevate came together because they share the same vision about the critical role that gender diversity plays in business success over time, as well as the investment opportunity associated with investing in women. Pax has long been a recognized leader in investing in women and advocating for greater representation of women on boards. Ms. Krawcheck, one of the most powerful advocates for women in the financial services industry, is Chair of Pax Ellevate Management LLC and a trustee of the Fund.

About Pax World Management LLC

Pax World Management LLC, investment adviser to Pax World Funds, is a recognized leader in sustainable investing, the full integration of environmental, social and governance (ESG) factors into investment analysis and decision-making. In addition to the Pax Ellevate Global Women’s Index Fund, the first mutual fund in the U.S. focused on investing in companies that invest in women. Pax offers a family of seven mutual funds, ESG Managers® Portfolios, multi-manager asset allocation portfolios powered by Morningstar Associates, LLC, and separately managed accounts. Across all of its funds, Pax World withholds support from all-male corporate board slates, and working with other institutional investors, actively engages with companies to embrace gender diversity on their boards and advance women in the workplace.

About Ellevate Asset Management LLC

Ellevate Asset Management LLC was formed by Sallie Krawcheck to provide investors with a means of directing capital to companies that actively embrace gender diversity and female leadership as a lever for business success. Krawcheck also owns Ellevate Network (formerly 85 Broads), the global professional women’s network. Both of these organizations are dedicated to the economic engagement of women worldwide.

Article Reference Notes:

1 –  Credit Suisse Research Institute, “The CS Gender 3000: Women in Senior Management,” September 2014. ROE = Return On Equity. Past performance does not guarantee future results.

2 –  Andre Chanavat and Katharine Ramsden, “Climb to the Top-Tracking Gender Diversity on Corporate Boards,” Thomson/Reuters, October 2014.

3 –  Mary Curtis, “Gender Diversity and Corporate Performance,” Credit Suisse Research Institute, August 2012.

4 – Lois Joy, et al, “The Bottom Line: Corporate Performance and Women’s Representation on Boards 2004-2008,” Catalyst, 2011.

5 –  “Women at the top of corporations: Making it happen,” Women Matter, McKinsey & Company, 2010.

6 –  Sylvia Ann Hewlett and Andrea Turner Moffitt with Melinda Marshall,“Harnessing the Power of the Purse: Female Investors and Global Opportunities for Growth,” Center for Talent Innovation, 2014.

7 –  BCG Leveling the Playing Field, 2010, https://www.bcg.com/documents/file56704.pdf

8 – Harnessing the Power of the Purse: Female Investors and Global Opportunity for Growth, Sylvia Ann Hewlett and Andrea Turner Moffitt, May 2014.

9 – Jessica Bennett & Jesse Ellison, “Women Will Rule the World,” Newsweek, July 6, 2010.

You should consider a fund’s investment objectives, risks, and charges and expenses carefully before investing. For this and other important information, please obtain a fund prospectus by calling 800.767.1729 or visiting www.paxworld.com

Please read it carefully before investing. An investment in the Pax World Funds involves risk, including loss of principal.

Past performance is no guarantee of future results.

Fund Objectives: The Pax Ellevate Global Women’s Index Fund’s objective is to seek investment returns that closely correspond to or exceed the price and yield performance, before fees and expenses, of the Pax Global Women’s Leadership Index*, the first and only broad-market index of the highest-rated companies in the world in advancing women’s leadership, as rated by Pax World Gender Analytics.

*  A custom index calculated by MSCI. One cannot invest directly in an index

RISKS: You could lose money on your investment in the Fund or the Fund could underperform because of the following risks: the market prices of stocks held by the Fund may fall; individual investments of the Fund may not perform as expected; the Fund’s portfolio management practices may not achieve the desired result. Funds focusing on small/medium companies generally experience greater price volatility. Investments in emerging markets and non-U.S. Securities are generally less liquid and less efficient than investments in developed markets and are subject to additional risks, such as risks of adverse governmental regulation, intervention and political developments. The Pax Ellevate Global Women’s Index Fund does not attempt to outperform the Index or take defensive positions in declining markets. Accordingly, the Fund’s performance would likely be adversely affected by a decline in the Index. As this Fund can have a high concentration in some issuers the Fund can be adversely impacted by changes affecting issuers. There is no guarantee that the objective will be met and diversification does not eliminate risk.

Copyright © 2015 Pax World Management LLC. All rights reserved. Distributor: ALPS Distributors Inc.: Member FINRA.

ALPS Distributors, Inc. is not affiliated with Pax World Management LLC, Ellevate Asset Management, Ellevate Network, MSCI or Morningstar Associates.

PAX004961 (3/15)

Biographies:

Joe Keefe is President and Chief Executive Officer of Pax World Funds and its investment adviser, Pax World Management LLC, as well as its majority-owned subsidiary, Pax Ellevate Management LLC.

Under Joe’s leadership, Pax World has become one of the leading innovators and asset managers in the rapidly growing field of sustainable investing.

Prior to joining Pax World, Joe was President of NewCircle Communications, a strategic consulting and communications firm specializing in corporate social responsibility and public policy-oriented communications. He served as Senior Adviser for Strategic Social Policy at Calvert Group from 2003-2005 and as Executive Vice President and General Counsel of Citizens Advisers from 1997-2000. He is a former member of the Board of Directors (2000-2006) of US SIF, the trade association representing asset managers and investors engaged in sustainable and responsible investment throughout the United States.

Joe has written and spoken widely on the subjects of sustainable investing and women’s empowerment.  He is Co-Chair of the Leadership Group for the Women’s Empowerment Principles, a joint program of the United Nations Global Compact and UN Women, and a member of the Steering Committee of the Global Initiative for Sustainability Ratings (GISR). Joe was named by Ethisphere Magazine as one of the “100 Most Influential People in Business Ethics” in 2007, 2008 and 2011. In 2012, he was recognized by Women’s eNews as one of “21 Leaders for the 21st Century,” where he was the sole male honoree, and in 2014 Joe was honored at the United Nations as one of five recipients of the Women’s Empowerment Principles Leadership Award.

Joe is Chair of the Board of Directors of Women Thrive Worldwide, a leading non-profit organization shaping U.S. international assistance and trade policy to help women in developing countries lift themselves out of poverty. He is a former Democratic Nominee for United States Congress in New Hampshire’s First Congressional District and a former Chair of the New Hampshire Democratic Party and member of the Democratic National Committee. He received a Bachelor of Arts in Philosophy from the College of the Holy Cross, and a Juris Doctor degree from the University of Virginia School of Law.

Sallie L. Krawcheck is the Chair of Ellevate. Ellevate Network (formerly 85 Boards) is the global professional woman’s network, with 34,000 members from across industries and around the world. Ellevate Asset Management has partnered with Pax World on the Pax Ellevate Global Woman’s Index Fund, the first broadly diversified mutual fund of its kind, investing in the 400-plus top-rated companies in the world in advancing women’s leadership. These businesses are united in the recognition that investing in women is simply smart business.

Krawcheck is the past president of Global Wealth & Investment Management for Bank of America, the largest wealth management business in the world, at $2.2 trillion in client balances. Its operating businesses include Merrill Lynch and US Trust.

She has a track record of turning around and innovating to drive growth in a number of businesses. These include:

In addition, alone among senior Wall Street executives, Krawcheck reimbursed individual investor clients for a portion of losses incurred during the financial downturn from poorly performing products sold by Citi and, later again, at Bank of America.

Prior to joining Bank of America, Krawcheck was the chief executive officer and chairman for Citi Global Wealth Management, responsible for the Citi Private Bank, Citi Smith Barney and Citi Investment Research. During her time at Citi, she was also a member of the senior leadership committee and executive committee.

Krawcheck joined Citi in October 2002 as chairman and chief executive officer of Smith Barney, where she oversaw the global management of the Smith Barney and Citi Investment Research businesses. In 2004, she was appointed chief financial officer for Citigroup. In this role she was responsible for a number of asset dispositions, including the sales of Travelers P&C and Citi Asset Management.

Prior to joining Citi, Krawcheck was chairman and chief executive officer of Sanford C. Bernstein & Company. She began her career as a research analyst, covering the financial services industry, a role in which she was consistently ranked first in her field by Institutional Investor.

Krawcheck was recently named number 9 on Fast Company’s “100 Most Creative People 2014” list, as well as one of “10 Up and Coming Leaders to Watch” by Entrepreneur Magazine. During the research scandals, Fortune Magazine called her “The Last Honest Analyst” and noted that hers was the most influential voice for research quality and integrity. She has been listed as one of Forbes’ and Fortune’s “Most Powerful Women” in business and U.S. Banker’s top “Woman to Watch.” She is a past recipient of CNBC’s “Business Leader of the Future Award,” was one of Time magazine’s “Global Business Influentials,” Fortune’s “Most Influential Person Under the Age of 40” and an Institutional Investor top CFO in financial services. She was recognized by the World Economic Forum as one of its Young Global Leaders.

A native of Charleston, South Carolina, Krawcheck attended the University of North Carolina at Chapel Hill on the Morehead Scholarship and graduated in 1987 with academic honors in Journalism and Political Science. In 1992, she received a Master of Business Administration from Columbia University.

An active participant in the affairs of her alma maters, Krawcheck has endowed her former secondary school, The Porter Gaud School, with the Krawcheck Scholarship, a needs-based scholarship awarding full tuition to students of exceptional aptitude. She is on the Boards of Motif Investing and 2U. She is a member of the System Risk Council, chaired by Sheila Bair; is on the Bretton Woods Committee, the board of Carnegie Hall, the investment committee for The University of North Carolina and the board of overseers of Columbia University Business School. Krawcheck is a past member of the Board of Directors of Dell Inc, Blackrock and of the NY Economic Club.

Discerning the ways in which women interact with and affect the investment sector has in the past been challenging, as very few serious discussions delved deeply into the subject. The most prominent conversations have tended to focus on the different approaches men and women take when it comes to investing, the disparities that exist when saving for retirement and wealth accrual, or similar comparisons. The more nuanced discussion regarding how women might shape the future of the financial services industry needs to be had. As most know, women increasingly make up significant percentages of the total workforce in developing and emerging economies alike. In most Organization for Economic Co-operation and Development (rich industrialized) countries, women outpace their male counterparts in terms of college graduation rates. And the share of global wealth and earnings controlled by women is rising at a rapid rate. All of these factors make women the largest emerging market in the world – twice as big as India and China combined – with over $5 trillion in growth since 2009. As a result, women are poised to have a massive impact on the investment and financial services spheres in the coming decades, and as such, conversations have moved away from stark gender comparisons toward discussions that focus on how the investing world must adapt and embrace women in their own right.

How Far We Have Come – And Where We Are Going

In order to understand the wave of change women will bring to the investment sector in the coming years, it is important to look at the evolution of women and wealth over the past few decades. Using 1980 as a base year for comparison, women comprised just 42.5 percent of the labor force in the United States. By 2012, women made up 49 percent – or half – of the US workforce, with nearly 58 percent of adult women employed. Perhaps a clearer contrast: the number of women working has grown by 27 million in the last 35 years, while the number of men working has grown by just over 13 million. In the same time period, the wage gap has shrunk from 35 cents on the dollar to 18 cents – not the well-deserved parity that should exist, but progress nonetheless.

What does this progress mean for the current and future state of women in the economy, and in investing in particular? The fact is, these trends are only accelerating. For example, among households with at least $250,000 in bankable assets, women currently control a third of wealth in the U.S. and Canada. As such, of the top 25 percent of high-income American households, women already comprise one third of the total wealth. Additionally, women already hold over half of all investable assets in the U.S., and that share is only expected to grow. Over the next two generations, women are projected to receive 70 percent of inherited wealth in the U.S. Finally, by 2028, the average American woman is projected to earn more than the average American man.

Viewed through this lens, we begin to see women will increasingly be the key growth market in terms of individual investors in our country. And the same is true globally. By 2018, working women will increase their earned income globally to $18.5 trillion, according to a 2014 report by the Transamerica Center for Retirement Studies. The global average of female earned income is expected to rise by about $8,000 by then. Currently, women control 27 percent of the world’s wealth, and women-controlled wealth is expected to grow at an average rate of 8 percent.

What Are The Ramifications?

Given the growing economic clout of women, there are a number of takeaways to be gleaned based upon what we know about how women invest. Perhaps the biggest shift we can expect is an increased focus on socially responsible investing, as women are known to link their values with their investments. Numerous surveys have born this out: high net worth investors were asked how important social, political or environmental impacts were in evaluating investments. Of the women surveyed, 65 percent said these factors were “somewhat” or “extremely” important, while only 42 percent of men said the same. Another survey similarly found nearly 42 percent of the women questioned report they are “likely” or “very likely” to make environmentally responsible investments, compared with just 27 percent of men. Interestingly, these views are also true for financial advisors. Female advisors report to be more interested than their male counterparts in using sustainable investing funds or strategies – that is, those that integrate environmental, social and governance (ESG) factors into the investment process – by a margin of 59 percent to 34 percent. As women invest more wealth, we are likely to see a much greater demand for socially responsible investment vehicles.

Which brings us to another expected trend: greater numbers of female financial advisors. The Certified Financial Planning Board of Standards is already trying to entice more women to consider the business of financial advice. Large financial advisory firms see the writing on the wall, and you can expect they will begin to place more emphasis on building their internal expertise on socially responsible investing. Hiring more women not only helps them do this, but it also allows them to better attract female clients. The beginning phases of this move have started to take place, as large firms such as BlackRock, Barclays and Bank of America begin to place greater emphasis on both impact investing and hiring more women.

Finally, I think the coming decade will see a surge in the number of publicly traded companies with women in senior positions and on their boards. Catalyst, a U.S. non-profit focused on expanding opportunities for women in business, continues to deliver research on the relationship between the representation of women on boards of directors and corporate performance. In its 2011 research, Catalyst found a 26 percent difference in return on invested capital (ROIC) between the top-quartile companies (with 19-44 percent women board representation) and bottom quartile companies (with zero woman directors).

The Challenges Ahead

Even with these changes shaping the way investing is done now and in the future, a number of obstacles remain. The wage gap remains, particularly for older women and women outside of the United States and Europe. In the US, Brazil, China and the UK, women earn 15-20 percent less than men. In other major economies like Russia and Japan, the wage gap can exceed 25 percent. In South Korea, it is over 37 percent! And while women are closing the pay gap, it reemerges over the course of their careers. In the United States, by age 65, women will have lost more than $430,000, on average, in lifetime earnings because of the gender pay gap. So the pay gap will still have significant implications for women and our ability to accrue and invest wealth over a lifetime, both in the United States and around the world.

Secondly, even though I believe we will see progress, the number of women in upper management positions remains unacceptably low. While a larger percentage of women work in white-collar management positions than their male counterparts, that has not translated to the upper echelons of firm leadership. If you look at the composition of all S&P 1500 boards, only six – less than 1 percent – have a majority of women! While the percentage of women on Fortune 500 boards has risen from 16.4 percent to 19 percent in the last 5 years, and rose to 22 percent in 2014 among Fortune 100 companies, this is still embarrassingly low.

Article by Mellody Hobson, President of Ariel Investments (www.arielinvestments.com )

Mellody directs Ariel’s firm-wide management and strategic planning, overseeing all operations outside of research and portfolio management, and serves as chairman of Ariel Investment Trust’s board of trustees.

Mellody is chairman of the board for DreamWorks Animation SKG, Inc. as well as a director of The Estée Lauder Companies Inc. and Starbucks Corporation. Her community outreach includes serving as chairman of After School Matters, a non-profit that provides Chicago teens with high quality, out-of-school time programs. Furthermore, she is dedicated to financial literacy and regularly contributes to CBS News, the Tom Joyner Morning Show and Black Enterprise magazine. She is a board member of the Lucas Museum of Narrative Art, The Chicago Public Education Fund, and Sundance Institute, where she has been appointed emeritus trustee. She is also on the executive committee of the Investment Company Institute’s board of governors.

Mellody earned her AB degree from Princeton’s Woodrow Wilson School of International Relations and Public Policy. She also received honorary doctorate degrees in humanities from both Howard University and St. Mary’s College.