Why Companies With Women Executives Succeed More Often

A new fund invests specifically in companies with female leadership. Is this simple social justice -- or an astute investment strategy?

Jun 15, 2014 at 1:00PM

Wikipedia / Grace Villamil.

Sallie Krawcheck, a notable Wall Street figure, has partnered with Pax World Management to develop a new index fund. The Pax Ellevate Global Women's Index Fund (NASDAQMUTFUND:PXWEX) invests globally in companies' female executives, board members and female-friendly policies. 

The business case 
While there are obvious social reasons behind the fund, Ms. Krawcheck emphasizes the business angle of her venture: 

Research indicates that companies with more women in senior management have higher returns on capital, lower volatility, greater client focus, increased innovation and greater long-term orientation. As a result, I believe they should also deliver better stockholder returns over time.

Boards with women outperform -- especially in crises 
There is evidence to back up her claims. While some academics don't find any positive effects to gender diversity, Thomson Reuters released a study in 2013 that showed improved share price performance with gender diversity.

Credit Suisse researchers reported similar findings. Looking at 2,500 companies worldwide between 2005 and 2011, it reported that while companies with female board members outperformed slightly in good times, the real benefits appeared from 2008 onwards.

In other words, companies with more gender diversity outperformed during the crisis. To borrow the words of the Credit Suisse researchers, they tend to look defensive, outperform when markets are falling, deliver higher average returns on equity, and experience less volatility in earnings. 

It's the return on equity that's most striking -- while share price is nice, the real long term benefits of an investment comes from the underlying business performance. And indeed, large companies with greater female representation have better returns on equity and sales. 

How can you tell if a company is "Good"? 
While the literature on female board membership seems pretty solid, looking at diversity programs in large organizations yields fewer clear results. What is an investor interested in social policies to do?

One large review paper, published in the academic journal Human Resources Management, emphasizes the importance of support for diversity programs from the top; in other words, when top-level management is perceived to support diversity measures, they're more likely to succeed. Whether or not the fund will use this as a factor in their investment model is anyone's guess; however, it's probably not a bad shorthand for those of us analyzing our investments with fewer resources.

The idea of a shorthand might also be handy because a company's situation is an important part of whether a diversity program will be successful, and this might be hard to analyze from the outside. For example, a company that's already rather diverse will have an easier time than one starting from scratch, and those with cultures of openness and creative conflict might fare better as well.  

The joy of more data
It will be interesting to see the birth of the new fund and to look at its performance over time. I for one am quite interested in the idea of putting one's money where one's mouth is -- perhaps a testament to the overall growth of values-based investments. 

But this could be much more than a social experiment -- we could very well be seeing the birth of an interesting new investment strategy.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That’s beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor’s portfolio. To see our free report on these stocks, just click here now.

Anna Wroblewska has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers