Reporting on Gender Equity Is a Key Step to Improving Diversity, Upward Mobility for Women
The percentage of women in management matters more than gender diversity on company boards, Morningstar research says.
Even as the pandemic dealt a blow to women's participation in the paid workforce, companies that focused on measuring and disclosing the gender diversity of their management and rank-and-file employees were able to make strides in achieving gender equity, according to new research by Morningstar.
In 2022, women around the world continue to face barriers that impede upward mobility and participation in the paid workforce. Many of these barriers were highlighted during the coronavirus pandemic. While the pandemic had a detrimental impact on labor force participation across the board, female workforce participation was impacted more severely, falling 4% relative to 3% for males on a global basis between 2019 and 2020(1). As of 2022, global female workforce participation is 46.6%, which materially lags male workforce participation of 72.0%.(2)
According to the International Labour Organization, the primary reason women of a working age abstain from the paid workforce on a global basis is due to unpaid care responsibilities, owing to issues such as insufficient support and unequal opportunity for high-quality work relative to male counterparts. This dynamic was magnified during the COVID-19 pandemic as additional caring responsibilities, such as home-schooling, increased the burden on women, including those juggling paid and unpaid labor.
At the same time, structural barriers such as insufficient parental leave, a lack of flexible working arrangements and support to rejoin work following extended leave, and gender pay inequality can discourage women from participating in the workforce. For women actively working or looking for work, barriers such as biased hiring practices, gender-based discrimination, and a lack of mentorship, career development support, or training can limit upward mobility potential within an organization.
Campaigns by high-profile industry groups such as 50/50 Women on Boards to increase female representation on company boards continue to prove effective. The percentage of women on boards improved 3% year over year for companies in the Sustainalytics coverage universe that reported in both 2019 and 2020, despite a slight decrease in female workforce participation overall. (Sustainalytics is a Morningstar company.) While this is a positive development for female career progression and gender diversity in leadership, research published in our October 2021 report "Human Capital: Making Sense of One of the Most Common Material ESG Issues" indicates that higher gender diversity on boards corresponded with greater employee turnover. (The full report is available to subscribers of Morningstar Direct.) As boards are typically removed from the day-to-day operations of a business and do not have direct contact with the workforce, we conclude that board diversity is unlikely to inspire employees to seek advancement within a company.
Our research indicates that the number of women in senior management matters more. Companies with greater parity between the percentage of women in senior management and the percentage of women in the rank and file achieve lower employee turnover. In practice, the data suggest that if employees see equal representation in leadership roles and opportunities for career progression, they are more likely to stay with a company longer.
Between 2019 and 2020, there was a marked 15% increase in the number of companies in the Sustainalytics universe that disclosed the percentage of women in the workforce and women in senior management. According to a 2022 Bloomberg report, investors are increasingly expecting companies to include gender equality initiatives in their business processes and to report on gender-focused metrics. The aim is for the workforce, including senior management, to be representative of the diverse composition of the general population.
We have observed varying trends for the percentage of women in the workforce, women in senior management, and the ratio between the two (signaling the degree of representation across different seniority levels) for companies reporting in both 2019 and 2020, versus those reporting for the first time in 2020.
Based on 2020 reporting, we observed a marginal increase (0.17 percentage points) in the average percentage of women in the workforce across all subindustries relative to 2019. However, for those companies reporting in both years, we observed a slight decrease (less than 0.05 percentage points).
This data show that the addition of new reporting companies had an accretive impact on the overall percentage of women in the workforce, but we do not have the data to assess how the same subset of companies performed year over year. For the companies that reported in both years, events such as COVID-19 may have played a role in the decrease of women in the workforce. However, the average decrease observed for these companies is less than that reported by the International Labour Organization.
Notably, for the companies that reported in both years, the average percentage of women in senior management increased year over year by 1.14 percentage points. Meanwhile, the inclusion of companies reporting for the first time in 2020 had a dilutive impact, resulting in an 0.88-percentage-point increase year on year. In our view, this suggests that companies displaying a continued focus on gender diversity issues through multiyear reporting have shown greater progress in increasing the representation of women in senior management, creating opportunities for upward mobility, or hiring more women externally to fill senior management roles. Measurement of the issue is leading to improvement.
Focusing specifically on subindustries with over 50% female workforce participation, we also observed favorable shifts in these metrics for companies that reported in both years compared with those that first reported in 2020. Examples include biotechnology, where companies that reported for both years reported an average 0.5-percentage-point increase in women in the workforce. When also including companies that reported for the first time, there is an overall decrease. Additionally, biotechnology companies that reported in both years reported a decrease of about 1% for women in senior management, relative to a 3% decrease when including new reporting companies.
A similar pattern can be seen for the managed healthcare subindustry, where women accounted for nearly 74% of the workforce in 2020, the highest female participation rate across the Sustainalytics subindustry universe. When including the new reporting companies, the average percentage of women in the workforce increased by roughly 1 percentage point, and women in senior management decreased about 0.5 percentage points in 2020. However, managed healthcare companies that reported in both years saw a roughly 0.5-percentage-point increase in the average percentage of women in the workforce as well as a 5.6-percentage-point increase in the average percentage of women in senior management (from about 21% to more than 26%).
This highlights that companies that have committed to reporting on gender diversity--and we infer these companies are also likely to have made internal commitments to improving equal opportunity for women--show greater progress relative to new reporting companies. This is particularly the case for women in senior management roles, with a stronger increase observed for companies that have consistently reported.
In our research paper focused on the importance of human capital, we noted a relationship between the gender diversity ratio (the percentage of women in senior management compared with the percentage of women in the workforce) and its impact on turnover. As always, parity is important. Companies that had stronger representation of women across levels--that is, a higher gender diversity ratio--showed lower turnover rates. From the 2020 female employment data used in this analysis, the companies that have consistently made disclosures about gender diversity have also shown progress in adding more women to senior management roles, subsequently improving this gender diversity ratio. As a result, they may be in a more favorable position to reduce turnover rates because of this relationship.
While we observe progress, it is important to mention that the average percentage of women in the workforce within the Sustainalytics universe in 2020 stood at roughly 36%, and senior management was even lower at an average 24%. Even for companies that have reported consistently in subindustries with women making up more than 50% of the workforce in 2020, the average percentage of women in senior management came in at 28%, only slightly higher than the overall average. Clearly, equal representation across all levels still lags, especially for subindustries that predominantly employ women, showing that further attention needs to be directed at initiatives that offer equal opportunities for women to enter the workforce and to advance in their careers. We expect the adoption of initiatives such as flexible working, mentorship programs, training on unconscious bias and discrimination, and gender-pay-gap analysis can support a company's ability to retain female employees, encourage upward mobility, and reduce employee turnover.
1) International Labour Organization. World Employment and Social Outlook: Trends 2022. https://www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/---publ/documents/publication/wcms_834081.pdf
2) International Labour Organization. Care Work and Care Jobs for the Future of Decent Work. 2018. https://www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/---publ/documents/publication/wcms_633135.pdf
Ava Gams contributed to this article.