On the eve of International Women’s Day, 2017, New York’s Financial District was introduced to “Fearless Girl,” a four-foot bronze statue of a girl with her hands on her hips, resolution on her face and wind in her hair.
State Street Global Advisors (SSGA), the world’s third largest asset manager, commissioned the piece as a symbol for their initiative to bring more women to leadership roles, especially on corporate boards. Two years later, the financial firm has outlined the results of its initiative in its 2019 Annual Stewardship Report.
The report doesn’t only quiet skeptics that would assume the statue was an empty corporate ploy; it also shows that investment firms can make a tangible difference with their voice and voting power.
In 2017, SSGA reached out to 1,357 companies — amounting to about 70 percent of the equity assets the firm manages — that lacked female representation on their corporate boards. As of June 30, 43 percent of those companies have added a female director. That amounts to 577 companies. Six more have committed to doing the same.
Was the statement behind Fearless Girl enough to move the needle?
State Street did more than install an inspiring statue to achieve these results. They had to engage the chosen companies in conversations, and when necessary, vote against the chair of businesses that did not taken adequate action to add a female board member.
The firm has taken voting action against 667 companies thus far.
“Unlike their active manager colleagues, index portfolio managers don’t have the luxury of selling companies they think are adding risk to the portfolio,” Rakhi Kumar, Senior Managing Director and Head of ESG Investments and Asset Stewardship, says in a 2018 State Street article. “If a company is in the index, we own it. So our job is to identify areas of concern or opportunity, and help companies to act on them.”
Kumar added, “We do that through a constructive engagement process: When companies fail to take action we will use our proxy voting power to bring about change.”
Most conversations with companies have been positive, according to Kumar, but some took a turn for the worse. She recalls a company leader saying, “So you want a woman? We’ll give you a woman.” The company didn’t comprehend the bigger picture — that diverse perspectives are important, even good for business.
The benefits of diversity to business are well documented. A McKinsey Study found that companies with more gender diverse executive teams outperformed their competitors by 21 percent in profitability and by 27 percent in value creation. And companies that opted out of diversity were 29 percent less likely to achieve above-average profitability.
State Street has been nuanced in its engagement with its companies, beginning by understanding how the companies view diversity and whether they are open to having a conversation. If a company shows it is open, the investment firm proceeds with the company’s data — what they collect and how they are using it.
Other investors are speaking out and demanding data
Data collection and transparency show that a company cares about diversity. That data is essential for investors to understand the companies they buy into.
The state of equity and diversity data is dismal amongst Fortune 500 companies. To get a better picture of their assets, some investors have recently taken a stand for more transparency. While SSGA may have been the first large U.S. asset manager to take action on gender diversity, it is far from the last.
Ninety-nine investors (as of June) have signed a disclosure statement, asking companies to publish data on workplace equity policies and practices. Like State Street, these investment firms understand the role diversity plays in profit.
Workplace equity is not a piece of cake
Achieving workplace equity and diverse leadership will not be easy. State Street itself faced a gender discrimination lawsuit in late 2017, ending in a $5 million settlement. If anything, this shows the road will be long.
While SSGA is expanding its stewardship in 2020, it will not abandon Fearless Girl. In its third year, State Street plans to tackle the 57 percent of its companies that have not yet taken action on gender diversity. The firm is stepping up its reprimands by voting against the entire nominating and governance committees of companies that lack action and productive dialogue.
Productive dialogue can start a chain reaction. Kumar describes one such situation in a State Street article. In Houston, a real estate investment trust “wrote us a letter informing us that they had added a woman to their board and that our input had helped shape their board refreshment process and discussions.”
Investment firms have inordinate power to change business landscapes. State Street’s Fearless Girl is showing the difference this power can make when it is used for value-based stewardship.
Image credit: Billie Grace Ward/Wiki Commons