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ESG Investment Program

Second Quarter 2019

Key Takeaways
  • The estimated value of reaching full gender parity has increased, both in terms of global productivity and corporate performance.
  • Trends toward gender parity are affecting our international investments and should soon have a larger impact in the U.S., both through exposure of U.S. companies to these trends abroad and through potential similar developments domestically.
  • ClearBridge combines engagement with proxy voting to encourage stronger gender diversity measures in our holdings across all sectors and market caps.
Mending the Gender Gap

It has been three years since we published our last commentary on gender in the workplace, and we are encouraged to find new evidence of the benefits of gender diversity as well as the progress made toward it both in society at large and within our portfolio holdings. Though much work remains to be done, we see ample evidence of the value of the efforts made by research groups and governments. In our own role as an active shareholder, we continue to work to further improve gender parity in the workplace through active ownership of leaders in gender diversity and engagement with companies we own.

Value of Gender Parity is Becoming Clearer

Recent research confirms the persistence of a positive relationship between diversity and business performance. In its 2015 study, Why Diversity Matters, McKinsey found that companies in the top quartile for gender diversity on executive teams were 15% more likely to have above-average
profitability than those in the fourth quartile. Expanded and updated data shows this likelihood has increased to 21%, with these companies also 27% more likely to have superior value creation.1
Another study found that companies with higher scores for board and management diversity saw consistently higher future returns on equity than those with lower scores (Exhibit 1).


Exhibit 1: Board Diversity and Women Managers Lead to Higher Returns

Reprinted by permission. Copyright © 2019 Bank of America Corporation (“BAC”). The use of the above in no way implies that BAC or any of its affiliates endorses the views or interpretation or the use of such information or acts as any endorsement of ClearBridge’s use of such information. The information is provided “as is” and none of BAC or any of its affiliates warrants the accuracy or completeness of the information.

Gender Diversity in the Workplace is Improving

Recent statistics on gender in the workplace show some progress is being made. In leadership, female directors have made strides (Exhibit 2). In 2018, on average, boards had 2.6 female directors, compared with 1.7 a decade earlier, and 40% of new board directors were women, a new high since 1998 and a notable increase from 36% in 2017.2

Exhibit 2: Female Leadership Gains

  2016 2018
Number of boards with no female directors 1.0% 0.5%
Woman % of directors 21% 24%

Source: Spencer Stuart

In terms of gender pay, one study shows the U.S. adjusted pay gap has narrowed since 2016, from 5.3% in 2016 to 4.6% in 2018.3 But progress has been slow, and using optimistic estimates, the same study predicts the U.S. pay gap will not close until 2035. Using conservative estimates, it will not close until 2070.

But There is More Work to Be Done

The range of estimates for achieving gender equality in the workplace underscores just how much work is needed to achieve even a modest improvement. Equileap, an organization providing data and insight on gender issues in the workplace, has offered a valuable step forward by developing a
scoring and ranking system to show companies’ commitment to gender equality.


"A robust and repeatable scoring system for measuring gender diversity enables the year-to-year tracking crucial to making improvements."


Equileap’s scoring system uses 19 data clusters divided into four categories that measure a) gender balance in the overall leadership, management and workforce of a company, b) equal compensation and work life balance, c) policies promoting gender equality and d) commitment to women’s empowerment, transparency and accountability. The latest scoring is one indication of the lengths we need to go, but we are encouraged by the robustness, and more importantly the repeatability, of the scoring system, which will help enable the year-to-year tracking necessary for making improvements (Exhibit 3).


Exhibit 3: Top 200 Companies by Grade

As of 2018. Source: Equileap.


International Markets Making Gains

Efforts to make further gains toward gender equality in the workplace are now taking different forms in different markets around the world. In Europe, there is a trend toward requiring transparency in gender pay data and addressing significant disparities. France recently passed legislation dictating that companies with 50 workers or more publicly assess their gender pay parity. The methodology for measuring pay gaps involved five weighted indicators that take into account the percentage pay gap (factoring in age, type of job and all forms of remuneration), proportions of men and women receiving pay raises and promotions, the granting of pay raises after maternity leaves if such raises were given in the interim, and the proportion of men and women among the most highly paid employees in the company. If a company scores below a certain level three years in a row, it may have to pay a penalty of 1% of the company’s annual payroll.

Mandatory gender pay gap reporting also applies in the U.K. and is being considered in Ireland. In Portugal, as of February 2019, employers with more than 250 employees must assess male and female salaries annually and justify or correct salary differences.

Japan, meanwhile, is suffering from labor shortages, which have brought to light the large number of women absent from management levels of the workforce and who are necessary to help solve Japan’s productivity woes. The Japanese government has responded with labor reform policies that dramatically improve parental leave benefits and aim to fix daycare shortages in order to get mothers into the workforce. Policies are also designed to increase the labor participation rate by encouraging the inclusion of female workers and provide safety net programs (for both elder and child care). While the gender pay gap remains, the female labor participation rate has grown in the past six years, from 48% in 2012 to 52% in 2018.4

At the same time, one study found regulatory support alone is not enough to generate positive effects of diversity; there must also be strong cultural support of working women.5 Japan still has a historical patriarchal work culture that restricts normative acceptance of working women and likely limits the benefit for firms of increased regulatory support for gender parity in the workplace.

ClearBridge holding Shiseido, a Japan-based cosmetics and beauty care provider, is an outlier, however, and is well ahead of its peers in having women exceptionally represented as directors, board members and corporate officers. In meetings with Shiseido in Japan and in our New York
office we have discussed Shiseido’s ESG goals and its communication of them to the markets. We believe Shiseido is interested in improving women’s social status and embraces the UN’s Women’s Empowerment Principles.  Aware of gender pay issues, the company has changed its pay methodology from a seniority status approach, common in Japan, to performance-based pay. In general, Shiseido has gone above the Japanese corporate governance code and we expect that effort to continue as it further improves its gender policies.

Creating Gender Parity Through Ownership and Engagement

Trends toward gender parity are affecting our international investments and should soon have a larger impact in the U.S., both through exposure of U.S. companies to these trends abroad and throughpotential similar developments domestically.

While the U.S. may be behind other countries in its regulatory support for parental paid leave — it is the only developed country to not mandate paid family leave — some companies are making progress on their own. ClearBridge holding Etsy, the e-commerce services company brokering handmade and vintage items such as clothing and housewares, supports parents regardless of their gender with a 26-week gender-blind parental leave policy that is available to all Etsy employees globally. The company also established hiring and training guidelines to help create gender equity in the workplace; both the board of directors and the executive team are at least 50% women, 55% of Etsy employees are women (as of December 2017) and Etsy’s engineering team is almost a third women. Etsy’s business itself empowers women around the world as well: 87% of sellers on its platform, versus 33% small business owners who are women in the U.S.


"We also promote gender diversity leaders especially in areas where this has historically been lacking, such as in smaller companies."


ClearBridge is working to further improve gender parity in the workplace through both active ownership of leaders in gender diversity and through engagement with companies we own on specific gender-related topics. For example, while finance has been slow to embrace gender parity in investment roles, ClearBridge holding Bank of America is a representative financial services company that has made notable strides in addressing gender diversity representation and support, as well as the gender pay gap. Our financials analyst engaged with management recently on the topic of gender diversity and other sustainability matters. In this discussion, management addressed the company’s commitment to diversity and inclusion of its workforce, including that 51% of global employees and 42% of global management are female. Bank of America explained that it is focused on driving sustainable “Responsible Growth” by enacting policies and practices to support its diverse workforce, such as investing in their Women Leadership Council for senior executives and employee networks for women at all levels to support recruitment, development, networking and culture. The company was named the 2019 Catalyst Award winner by Catalyst, a global nonprofit working with CEOs and companies to help build workplaces that work for women.

We also promote gender diversity leaders especially in areas where this has historically been lacking, such as in smaller companies. ClearBridge is a top shareholder of Agios, a small biotech company that develops small-molecule anti-cancer therapeutics targeting cancer cell metabolism. With a female CEO and above-average gender representation on the board versus industry peers, Agios is a leader in achieving gender diversity among biotechnology firms. It is far above average for companies of similar market cap size and with similar tenures as public companies, and scores better than many more mature, large-cap biotech companies that have had more time and resources to improve their diversity.

Engagements are a critical part of our approach to ESG investing, and engagements on gender can have a material effect on our own ESG rating for a company. One of our information technology analysts reached out to the management of an infrastructure software holding and addressed allegations of gender pay disparity. The discussion was less transparent than anticipated, given the company’s previous history of open dialogue. Because of the company’s unwillingness to discuss the basis of the allegations, the analyst downgraded the company’s ESG rating and has committed to monitoring and engaging management on this issue.

We also combine proxy voting with engagement to encourage stronger gender diversity measures in our holdings. For example, our media analyst and several portfolio managers have met with Discovery Communications over the past few years and discussed gender diversity and the representation of women on the board of directors. As the top shareowner of the stock, ClearBridge portfolio managers voted 100% of the firm’s shares in previous years in support of a shareholder proposal to request the board to adopt a policy for improving board diversity. This engagement process was in line with the company’s long-standing commitment to support its female workforce: 55% of its managers and 47% of its executives are women. In addition, the company offers work  flexibility, advancement mentoring, family support policies and up to 22 weeks of paid maternity leave, which is among the highest of publicly traded companies in the U.S.

We are encouraged by the progress toward gender parity in which we have participated through our active ownership of leaders in gender diversity such as Shiseido, Etsy, Bank of America, Agios,  Discovery Communications and others, and through engagement with the companies we own across geographies, market caps and sectors. While there are still milestones ahead, our long-term ownership approach affords us several avenues to make gains as we continue to work with our portfolio companies to close the gender gap, and to drive the returns gender diversity has proven to spur.

Mary Jane McQuillen

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

Related Perspectives

  • All opinions and data included in this commentary are as of the publication date and are subject to change. The opinions and views expressed herein are of the author and may differ from other portfolio 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, LLC  nor its information providers are responsible for any damages or losses arising from any use of this information. 

  • 1

    McKinsey, “Delivering through Diversity,” January 2018.

  • 2

    2018 United States Spencer Stuart Board Index.

  • 3

    Glassdoor Economic Research, “Progress on the Gender Pay Gap: 2019.” The adjusted pay gap adds “statistical controls for differences in education, job titles and other factors aside from gender that affect pay.”

  • 4

    The World Bank, International Labour Organization, ILOSTAT database. Data retrieved April 2019.

  • 5

    Letian Zhang, Harvard Business School. “An Institutional Approach to Gender Diversity and Firm Performance,” forthcoming in Organization Science.