This Week's Herman Trend Alert

Leadership in Normal 2.0

  The Herman Trend Alert

May 18, 2016

The Gender Diversity Payoff

Whether or not you're a fan of John Gray (author of the book Men are from Mars, Women are from Venus), you probably know that having diverse perspectives on a team translates to greater creativity and innovation and better decision making. So it just follows that having gender diversity would pay off for companies, and of course, their investors as well.

ItŐs now official
A new report from the global financial services firm Morgan Stanley finds that more diverse companies outperform their equals financially. Their study found "companies that have a balanced workforce of men and women, pay equally, and offer work/life balance programs, such as day care and maternity leave, tend to have better returns on equity". Moreover, they are considered "higher quality" companies by their employees as well as investors.

Gender diverse companies outperformed their competition
After analyzing 1,600 companies in developed markets based on gender diversity, Morgan Stanley ranked them based on financial metrics, such as profitability and stock performance. Over the last 10 years, companies ranked higher for gender diversity outperformed their low-diversity competition by 2.3 percent in North America and 1.3 percent in Europe.

Other characteristics of outperforming companies
Higher-scoring companies were characterized by "a large representation of female staffers, more women in key c-suite positions, fairer pay, diversity policies, and programs that helped women balance their personal and professional lives". In addition, these quality employers often had fewer liabilities and lower volatility, related to return on equity than their sector peers with lower gender diversity scores.

Better quality companies, period.
In a note to clients, a group of Morgan Stanley analysts led by Adam Parker said "In essence, companies that screen better for gender diversity metrics are higher quality companies" (read better "investments").

A longer-term focus
Another reason why these companies are more profitable is that they are inclined to have a longer-term focus, usually making for better strategic decisions. And driving more profit, they have more money to invest in better benefits packages. And we know from the 2016 Aflac Workforces Report that benefits matter in recruiting and in retaining talent. (Look for a subsequent Trend Alert to cover those results in depth.)

Our forecast
More companies will embrace the value of gender diversity and reap the accompanying rewards. Those that cling to the past will find themselves unable to recruit the female talent they want and need and falling behind in profitability.

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