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ESG Investment Program

Second Quarter 2016

Key Takeaways
  • Despite increased representation of women on boards and in executive positions, global companies in aggregate still have much to accomplish to achieve gender diversity.
  • More gender-diverse companies are associated with many of the same characteristics found in companies with high-quality fundamentals
  • Proxy voting and engagement do have an impact on improving transparency on gender inclusion and pay issues
Gender Diversity in the Workplace

The attainment of leadership roles by women at public companies and in public office speaks to the professional progress they have made and the important roles they play in providing diversity in the workplace. Gaining equal employment and advancement opportunities have been goals of working women and women’s organizations for decades. While much progress has been made, more can be done on many fronts to improve diversity. For the companies we invest in at ClearBridge, promoting greater representation on corporate boards of directors and in the executive ranks are two important ways to gauge progress.

We are encouraged by increases in the corporate disclosure of gender diversity as it helps better frame the issue and more accurately track progress. These disclosures show that female board representation continues to increase, albeit at a moderate pace. Catalyst, a non-profit which has been working to accelerate and track the progress of women in the workplace since 1962, also notes that inclusion of women in management roles has been slowly improving. Through the end of 2014, women held 51.5% of management, professional and related positions at S&P 500 companies, but just 19.2% of board seats and 4.0% of CEO positions.1 Strengthening female board representation promotes the development of a greater supply of female executive talent with the potential for future board appointments, creating a virtuous cycle. But it’s not enough for women to successfully rise through the ranks. Their accomplishments need to be communicated and their influence leveraged to encourage broader approaches to education and training that will lead to more qualified females entering industries where gender imbalances are particularly acute, such as technology. U.S. companies also need to address a broader trend that has seen women’s share of the total labor force decline from a peak of 60% in 1999 to 46.8% today.

Achieving gender balance in the workplace has been shown to have positive financial impacts on both societal and company levels. The McKinsey Global Institute estimated in 2015 that “full [gender] parity would increase global output by more than 25%.”2 Gender diversity is critical to companies and economies remaining competitive. For example, the addition of women in the workforce can help counteract the negative demographic trends of aging populations. A more diverse global workforce should also lead to higher productivity, higher incomes and less poverty, according to Morgan Stanley Sustainable & Responsible Research. On the enterprise level, gender diversity leads to the best talent being put to use, increased productivity as well as better talent retention and risk management.  Companies with more balanced workforces benefit from more diverse perspectives and skills, which can improve overall company performance. The “Women on Boards Davies Review,” a study of the British boards, concluded that diverse perspectives “prompted better understanding of customers, employees and other stakeholders” and promoted organizational change.3  Equitable hiring practices and diverse workforces also lower the risk of legal actions or reputational damage due to gender discrimination. The presence of women in corporate leadership may also improve performance, more so than their representation on boards, according to the findings of a working paper by the Peterson Institute for International Economics. That paper identified a persistent correlation between the proportion of female executives and firm profitability. 


"On the enterprise level, gender diversity leads to... increased productivity as well as better talent retention and risk management. "


While the lack of company specific data limits the applicability of performance studies, more gender-diverse companies are associated with many of the same characteristics found in companies with high-quality fundamentals. In a survey of companies in the MSCI World Index, Morgan Stanley found that companies that ranked in the top third of the index based on percentage of female employees outperformed those in the bottom third by an average of 380 basis points per month from 2010 to 2015.4 Morgan Stanley found similar advantages in company return on equity for firms with greater gender diversity than their peers. As with other ESG factors we consider, the impact of gender diversity varies by sector. In more public-facing industries such as financial services, business services, retail, leisure and travel, greater diversity is linked with higher employee morale. These increased levels of employee satisfaction can lead to better stock performance, according to work by Alex Edmans, a finance professor at London Business School. 

Most companies now acknowledge the advantages of gender diversity and no longer need to be convinced that women belong on boards. Today they are asking how to increase gender balance. Such proactive efforts are crucial as global companies in aggregate are still far from gender parity, much less diversity. A 2014 survey of 21,980 firms in 91 countries analyzed by the Peterson Institute found that nearly 60% have no female board members, over half lack female executives and less than five percent have a female CEO.5 A 2015 analysis by McKinsey found that just 16% of U.S. company executives are women while in the UK, just 12% are women. The situation is particularly discouraging in Japan, which significantly trails all other regions in female board members, managers and employees. European companies score well in board representation and overall female employees, but much of this is attributable to government-mandated inclusion in countries such as France, Spain, Finland, Iceland and Norway. We believe a quota approach has limited positive impacts compared to countries and companies which set voluntary targets for increasing diversity. The survey of diversity in Great Britain found that concentrating on the executive level could be the most effective way to foster a more balanced workplace and groom more women to serve on boards of FTSE companies.

Our Approach to Diversity

ClearBridge advocates for gender and other types of diversity through our investments in companies with strong social and governance records, individual company engagements, proxy voting and communication of gender and diversity-related issues.  Specific to gender diversity, we believe proxy voting does have an impact on improving transparency on inclusion and pay issues. Several technology companies, including Apple, Facebook, Intel and Microsoft, have recently released pay data, with Facebook and Microsoft disclosing that they pay men and women equally - all as a result of shareholder proposals. The Thirty Percent Coalition, a U.S.-based advocacy group which consists of 80 members ranging from public companies to national women’s organizations and government officials, has also seen success through engagement. The Coalition’s institutional investors regularly send letters to major publicly-traded companies that have no women on their boards. If the companies do not respond with support, then the group files shareholder resolutions. More than 60 companies have appointed women to their boards following the Coalition’s letter-writing and constructive dialogue campaigns. Along these lines, a just-released study on shareholder activism and gender diversity on corporate boards confirmed that shareholder proposals and corporate engagement have increased gender diversity on boards[6]. Based on a sample of S&P 1500 firms from 1997 through 2011, the authors found that financially-motivated activists are more likely to target firms with extremely low female board representation than socially-motivated activists. Those targeted firms significantly increased their female board representation in the two-year period following proposal initiation.

Most of the proposals we vote with respect to gender diversity request that companies that have no women on the board take steps to foster greater diversity over time.  In addition, we have voted for proposals asking the companies to address gender pay inequality, which have been particularly focused on companies in the technology and financial services sectors. As Exhibit 1 from Morgan Stanley Research shows, while pay inequality is most pronounced in traditional industrial sectors, it continues to exist across most businesses.


Exhibit 1: Female Executives Are More Underpaid in Traditional Industrials Sectors 

Source: FactSet, Asset4, Morgan Stanley Research as of June 30, 2016.


As part of our fundamental research process, we seek out companies with certain quality attributes - including workforce diversity, employee retention and strong corporate governance (including board diversity) - that will have a positive impact on future shareholder value. We believe the diversity of employees, senior management and board directors is an important factor in creating a company culture that attracts and retains the best talent. Labor practices and reputational issues including diversity inform our overall analysis of a company’s attractiveness as an investment. ClearBridge regularly engages with companies on the issue of gender and ethnic diversity, discussing policies, processes and performance on diversity issues. These conversations raise awareness within the companies that we, as a long-term investor, regard gender and ethnic equality as an important part of being a successful and responsible business.

Google is a company in our ESG strategies that includes several women among its executive leadership, including CFO Ruth Porat, and that has acknowledged the importance of supportive maternity policies. Earlier this year, Susan Wojcicki, CEO of Google’s YouTube unit, shared her thoughts with the Huffington Post on the importance of paid maternity leave for employee retention, “When Google increased its paid maternity leave policy from 12 to 18 weeks, we saw the rate at which new mothers quit fall by 50 percent.” If companies are realizing that extended paid maternity leave may help retain top women talent, as well as encourage and support new female workers in the workplace, this is a significant sign of progress for the longer-term stability of talent and overall performance.

Mary Jane McQuillen

ESG Head, Portfolio Manager
23 Years experience
23 Years at ClearBridge

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Related Blog Posts

  • 1

    Catalyst. “Statistical Overview of Women in the Workforce” April 6, 2016.

  • 2

    McKinsey & Company. “Why Diversity Matters.” January 2015.

  • 3

    Women on Boards Davies Review. “Improving the Gender Balance on British Boards.” October 2015.

  • 4

    Morgan Stanley Sustainable & Responsible Research. “A Framework for Gender Diversity in the Workplace.” March 31, 2016.

  • 5

    Peterson Institute for International Economics. “Is Gender Diversity Profitable? Evidence from a Global Survey.” February 2016.

  • 6

    Marquardt, Carol A., City University of New York – Baruch College and Wiedman, Christine I., University of Waterloo. “Can Shareholder Activism Improve Gender Diversity on Corporate Boards?” July 2016.

  • All opinions and data included in this commentary are as of June 30, 2016 and are subject to change. The opinions and views expressed herein are of the portfolio management team named above and may differ from other managers, or the firm as a whole, and are not intended to be a forecast of future events, a guarantee of future results or investment advice. This information should not be used as the sole basis to make any investment decision. The statistics have been obtained from sources believed to be reliable, but the accuracy and completeness of this information cannot be guaranteed. Neither ClearBridge Investments nor its information providers are responsible for any damages or losses arising from any use of this information. 

  • Past performance is no guarantee of future results.

  • Performance source: Internal. Benchmark source: Morgan Stanley Capital International. Neither ClearBridge Investments, LLC nor its information providers are responsible for any damages or losses arising from any use of this information. Performance is preliminary and subject to change.

    Neither MSCI nor any other party involved in or related to compiling, computing or creating the MSCI data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of such data. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in or related to compiling, computing or creating the data have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI data is permitted without MSCI’s express written consent. Further distribution is prohibited.