Tackling Gender Diversity at Scale
But Rakhi had a problem of her own: It would be difficult for any investment manager to effectively engage on gender diversity issues with each and every one of the 10,000 companies State Street Global Advisors invests in. “Even if we had a team three times as big, trying to tackle this issue with every company was not going to yield results,” she says, “It was more important to be smart about the screening process, determining which companies to target and finding a meaningful way to engage.” Rakhi knew it was important to screen a mix of sectors and company sizes. “We wanted to engage large companies to help them with these issues, because they could share these lessons with smaller companies,” Rakhi says. “But at the same time, we knew some smaller companies might approach these issues more effectively.”
The team also looked to focus initially on geographies where there was ample opportunity for improvement. And, lastly, they wanted to target companies that made up a significant portion of the firm’s investment portfolio — where there was potential to have a positive impact on long-term value for clients. “If the whole point is to safeguard assets owned by our clients, we needed a sample that represented a good chunk of our assets under management,” Rakhi says.
Eventually, the team settled on the Russell 3000, FTSE 350 and ASX 300 indexes. “When we looked at data for the Russell 3000, for example,” Rakhi says, “we saw that about a quarter of the companies didn’t have women on their boards — around 650 companies in all. Engaging those companies felt achievable but, as importantly, meaningful in terms of risk to the portfolio.”
Using Their Voice and Vote
In 2017, State Street Global Advisors became the first large US asset manager to announce that it would vote against a board’s nominating or governance committees if that company had no women on its boards and failed to commit to increasing gender diversity. As they did the year before when they began pushing companies to act on climate change, State Street Global Advisors accompanied notice of the new voting guidelines with detailed gender diversity guidance to help companies take action.
Then came the hard part: The team reached out to more than 700 companies they flagged for having no women on their boards. Most engagements were positive. But not all. And some companies were a little panicked, Rakhi says. “We heard from one: ‘We didn’t know people cared about this.’ Another seemed inconvenienced and said, ‘So you want a woman? We’ll give you a woman.’ They didn’t get it. We weren’t trying to get these companies to add women to their boards for the sake of it — but to understand why having those diverse perspectives is important to their companies and to us as shareholders.”
In all, State Street Global Advisors took voting action against more than 500 companies in the 2017 proxy season, but it’s the constructive engagements that Rakhi is most proud of. Since the guidance was issued, 152 companies have added a woman to their board and 34 more have committed to taking steps to improve gender diversity. Perhaps the most constructive outcome was with a real estate investment trust in Houston. Rakhi beams, “They 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.”
Most, however, required more finesse. Typically, says Caitlin McSherry, an analyst in Rakhi’s group, the team starts by trying to understand how companies view diversity. “First, we raise the diversity issue with them and gauge whether they’re open to discussing it. If so, we try to find out whether they keep diversity metrics such as the percentages of new hires, managers and executives, and, if they do, what they do with the data.”
The resulting conversations are often positive, Caitlin says. “One life sciences company with no women on their board currently called and told us they’d had an independent chairwoman on their board for many years who recently retired. They hadn’t yet added another woman but they were able to articulate how the company values diversity and how the woman who had been on the board was able to bring diverse perspectives and value. We’re not going to vote against a company in an instance like that.”
The Future of Asset Stewardship
Will other asset managers join these efforts? “We’re already starting to see growing momentum,” says Rakhi. “Since our announcement in March 2017, asset owners and managers representing US$13 trillion in investible assets have joined us in speaking up on this issue and indicated they’ll also be pushing to advance gender diversity. That’s very encouraging.”
And State Street Global Advisors isn’t letting up. The next stops on the Fearless Girl tour are Japan and Canada, where the asset stewardship team found surprisingly strong challenges to board diversity. “More than half of TOPIX 500 companies don’t have a single woman on their boards,” Rakhi says, noting that Japanese Prime Minister Shinzo Abe has made the issue of diversity a key plank of his economic agenda. Closer to home, Canada, despite its progressive reputation, isn’t much better, with four in 10 companies lacking gender-diverse boards, including 80 percent of start-ups.
With the expansion of the gender voting guidelines to Japan and Canada, State Street Global Advisors aims to engage with an additional 1,700 companies in 2018. “Ultimately,” Rakhi says, “this is about the journey — both ours as an asset manager identifying risks to long-term value, and the companies in our portfolio acting to take them seriously. We just have to be tenacious.” Fearless, even.