Why boardroom diversity means higher returns

RI leader is withholding votes for directors where companies are failing to address gender equality

Why boardroom diversity means higher returns

Diverse boardrooms translate to outperformance but more needs to be done to ensure women are better represented at executive level, according to a leading RI solutions provider.

NEI believes investors can play a huge role in moving the needle further on the issue and is urging people to use proxy votes to send a powerful message to companies.

To that effect, it has joined forces with Addenda Capital in committing to withholding votes from relevant directors at boards across Canada where gender diversity is lacking.

Rosa van den Beemt, senior ESG analyst at NEI, said diversity makes sense from both good governance and a gender equality perspective. She believes that making a stand like this makes it clear where investors’ expectations lie.

She added that while some sectors, like manufacturing, have made progress addressing this imbalance, other companies are not taking it as seriously as they should be. Women and millennials, two up-and-coming groups who will have an increasing amount of money to invest in coming years, are making this a priority and Van den Beemt warned slow-moving firms that a sea change is coming.

As well as setting the tone at the top of an organisation from a social standpoint, she stressed that apart from anything else, diverse boards and outperformance are linked.

She told WP: “Research has found that companies that have more diverse boards tend to have higher average returns and tend to spend less when they have an acquisition, for example, which is very interesting.”

Van den Beemt added that diversity also equates to better innovation and that a lot of women and millennials care about more than just financial returns. Companies with directors who understand that need will be better prepared, she said.

Crucially, being armed with hard data that proves the better-returns argument is especially useful when dealing with a company that is ignoring equal representation.

She said: “When we talk to a company where diversity is lacking, they might say, ‘well it’s hard for us to find a woman in this particular industry’. We tell them then you have to look a little bit outside your immediate circles.

“But having that research [about returns] at hand to say this is also why we care about it? Of course, we as investors want the company to do well so we share that goal, so we tell them that enhancing your board diversity is one way of doing that.”

Having a broader room of perspectives results in less tunnel vision, with greater diversity meaning people ask questions from different angles. And there is no greater example of this right now than in the oil industry, which is grappling with pipeline issues and confrontations with environmental and First Nations groups.

Van den Beemt said: “The oil and gas sector is dealing with challenges that they haven’t dealt with before – environment and social. People are moving away from certain energy companies in terms of investments because of environmental concerns. Having people on the board who understand this and are able to think innovatively and reflect the society in which the company operates is crucial to overcoming these challenges.”

So how can an investor push this issue? The obvious method to express their views is by utilising their proxy voting, where they can voice their support or dismay for a director. NEI believes this is the most immediate and powerful way to influence boardrooms.

“We have been withholding our vote whenever we feel there is a lack of diversity,” said Van den Beemt. “That used to be when there were no women on the board but we have recently changed that to where there are less than two women serving. However, if one of those nominating committee members is a woman, we won’t withhold support from the woman.”

Providing feedback to companies about why you voted a particular way is also important to help them comprehend the reasons for going for or against a director.

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