Gender Representation Progress Is Slow in C-Suite and Investment Management

Here’s a spot of good news for International Women’s Day: Investing in women paid off in 2022, based on the performance of a range of Morningstar gender-diversity indexes. But wide gaps persisted between men and women, in employment in fund management, in corporate management, and elsewhere, according to research conducted for International Women’s Day by Morningstar analysts.

According to research by Morningstar Indexes, so-called gender-diversity indexes beat their broad-market equivalents during the year. In a down year for global equities, the Morningstar Developed Markets Gender Diversity Index fell 16% in 2022, versus a 17.8% decline for its parent, the Morningstar Developed Markets Large-Mid Cap Index. These indexes emphasize companies that demonstrate a commitment to gender inclusion and equity. They consider questions like: What’s the gender balance within the workforce, the executive ranks, and the board of directors? Is the pay gap between male and female employees disclosed and mitigated? Does the company offer parental leave and flexible work policies that encourage female participation and alleviate the burden of domestic responsibilities?

In fact, in 2022, all but one of Morningstar’s gender-focused indexes outperformed their broad equity market equivalent. And they posted strong five-year returns.

One key reason is a below-market exposure to technology, which has a lackluster score on gender criteria, coupled with above-market exposure to energy and defensive sectors like healthcare, says Dan Lefkovitz, strategist for Morningstar Indexes. You can read more commentary by Lefkovitz here. (And if you want to brush up on so-called gender-lens investing, read this.)

But enormous gaps between men and women remain.

In investment management, as Megan Pacholok and Amrutha Alladi point out, there hasn’t been a substantial shift in the number of female portfolio managers over the past decade. Only about 12.5% of portfolio managers across U.S.-domiciled funds were female in 2022, a similar proportion as a decade earlier. Yet women have been making their mark in portfolio management. Keep an eye out for stories by Pacholok and Alladi about the achievements of top women portfolio managers this week.

Among corporations, women’s progress in the C-suite has been scant, even as they made good progress in corporate boards. Female CEOs remain an extreme rarity: Just 6.3% of all S&P 500 constituents were led by a woman at the close of fiscal 2021, barely 2 percentage points higher than 10 years ago, according to Jackie Cook, stewardship director of Morningstar Sustainalytics. “For investors this will have repercussions, as over the longer term, better stock price performance and value-creation strategies are associated with greater female representation on boards and management teams,” Cook says. In the C-suite, women earned just 82 cents for every dollar earned by men.

Narrowing that divide will benefit investors, because it challenges groupthink, and inclusion is considered good management. “Diversity of thought is important,” says Hortense Bioy, global director of sustainability research for Morningstar. “And while we’re talking about gender because of International Women’s Day, the representation of diversity of thought extends to all kinds of diversity, racial diversity, neural diversity, and inclusion.”

Shareholders are playing a role to achieve change. Morningstar’s in-depth analysis of U.S. companies shows that in the 2022 proxy-voting year, the number of shareholder resolutions on issues affecting women in the workplace jumped 46% from 2021. “Companies that are conscientious on women’s inclusion are perceived as more likely to be well-run businesses,” says Lindsey Stewart, director of investment stewardship research on Morningstar’s global manager research team. Read the analysis by Morningstar analysts Mahi Roy and Rasa Kerelis here.

A number of Morningstar’s best companies—which have carved out wide Morningstar Economic Moat Ratings and made smart decisions with their capital—are led by women. Margaret Giles and Susan Dziubinski write about them here.

And of course, you can invest in companies with strong equal pay practices. Allie McCallion and Charity Blue give us some options here.

We’ll update this letter all week with new links below for research and commentary. Happy International Women’s Day!

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