Gender Diversity: an economic and strategic imperative
12 SEP 2018
- THINKING ALOUD taken from Aberdeen Standard Investments
DEBORAH GILSHAN, ENVIRONMENTAL, SOCIAL AND GOVERNANCE INVESTMENT DIRECTOR
The economics of gender balance
Business culture is undergoing transformational change to harness the full potential of women in the workplace. This is being driven by legislation, such as gender pay gap reporting, and by the power of investor capital to accelerate progress on gender imbalances. What are the economics of achieving gender parity and how will corporate culture need to adapt accordingly?
The economic case for full participation of women in the labour market is strong. McKinsey research1estimates that narrowing the gender gap will double women’s contribution to the global labour market, improve representation of women in leadership positions and increase participation of women in the workforce. If parity is achieved i.e. women participating in the economy identically to men, there is the potential to add $28 trillion (or 26%) to annual GDP by end of 20252. Many ingrained societal practices, legal constructs and status quos must be overcome to achieve this. For example, the UN identifies four systemic constraints to the economic empowerment of women: adverse social norms; discriminatory laws and lack of legal protection; the failure to recognise and redistribute unpaid housework and care; and lack of access to financial, digital and property assets. As detailed in chart 1, to address these limitations would require: ensuring legal protection; reforming discriminatory laws and regulations; tackling adverse norms; promoting positive role models; improving public sector practices in employment and procurement; and changing business culture and practice, to name a few examples.
Changing business culture and practices
As a global asset manager, Aberdeen Standard Investments is committed to creating a business environment that retains and promotes female talent. For sustainable change in business culture and practice, the benefits of addressing gender imbalance at management, senior and board levels must be viewed as a way to optimise effectiveness and create a more inclusive environment. Recent literature suggest numerous benefits to workforces with improved gender balances:
- diversity of leadership styles leads to more effective decision-making 3;
- leadership behaviours of women are proven to have a positive impact on an organisation’s performance and health4;
- companies that are successful at retaining women are significantly better at retaining talented men such that corporate cultures improve for all genders5
- the best candidate for a role will be selected, based on merit, by increasing the pool of talent from which individuals are selected.
Gender pay gap
Gender imbalance manifests most visibly through the gender pay gap6, which we consider as economically inefficient because abilities and effort are systematically under-rewarded, resources tend not to be distributed and used optimally, and output per head is suppressed by discouraging participation. Data from developed countries illustrates that women are subject to both ‘sticky floors’ and ‘glass ceilings’. Beyond pay, employment and hours gaps in these markets also limit women’s economic potential. 7
Solving the gender pay gap will be transformational for corporate cultures. In the UK, the first year of annual disclosures has proved cathartic as well as uncomfortable reading. Disclosure and transparency are proving to be real catalysts for change. Reporting has provided a way for companies, management and boards to coalesce around the issue; in particular employees can hold their employers to account and investors can hold companies to account on a regular basis. In this regard, the importance of long term initiatives like pay gap disclosures in the UK will prove vital as the insights gained will indicate which companies need to adapt accordingly to prosper in the future.
The power of investor capital
The power of investor capital is also proving transformational. The 30% Club is a global market initiative to address gender imbalance and its UK Investor Group now has 32 global investment institutions with, collectively, £11 trillion of assets under management, engaging with UK companies on diversity8.
As part of the UK Investor Group since 2011, and its co-chair since 2016, over the last 18 months I have seen significant change in terms of engagement with companies. Diversity now features regularly in the engagements we have. Company leaders are approaching investors to explain how they are addressing gender imbalance in the workplace and aiming to utilise female talent fully. This is significant, as CEO commitment is one of three game changers, in addition to holistic transformation programmes and persistency9. Visible leadership on diversity matters as the signalling, internally and externally, from CEOs is vital to promote the required changes in business culture and practices. The 30% Club now has 64 FTSE 350 CEOs publicly committed to achieving 30% women in senior management teams and 44 Chairs of FTSE 350 companies publicly committed to achieving 30% women on boards by the end of 202010.
Diversity is emerging as an economic and strategic imperative. Addressing gender imbalances will change corporate cultures with major economic and social effects. Through legislative forces and the power of investor capital, change is being accelerated. A more equal future, and sustainable corporate cultures that work for all, may become a reality sooner than we think.
1McKinsey Global Institute, 2016 “Women Matter” series
3McKinsey Global Institute, 2016 “Women Matter” series
6 The gender pay gap is the difference in the average hourly wage of all men and women across a workforce. https://gender-pay-gap.service.gov.uk/public/assets/pdf/gender-pay-gap-explained.pdf
7 From sticky floors to glass ceilings, 10th April 2018, Weekly Economic Briefing, Aberdeen Standard Investments
8Aberdeen Standard Investments is a member of the 30% Club Investor Group and is committed to using the clients’ stewardship rights to achieve better outcomes in the companies in which they invest.
9McKinsey Global Institute, 2016 “Women Matter” series.
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