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Bar News - April 19, 2017

Opinion: Gender Equality: It’s Time to Advocate Through Our Investments


Editor’s Note: The following is an edited version of remarks Keefe gave upon receiving the 2017 Phillip S. Hollman Equality Award from the NH Bar Association Gender Equality Committee on March 10 in Manchester, in connection with the NHBA Midyear Meeting.

Most of us will recall that, in college, economics courses are often divided into macroeconomics – the study of how economies behave – and microeconomics – the study of how individual businesses behave. Looking through these two lenses, I would like to make a few comments about gender equality.

Let’s start with macroeconomics, where there is a particularly strong argument for gender equality. The historian David Landes captures this nicely in his book, The Wealth and Poverty of Nations, where he wrote, “The best clue to a nation’s growth and development potential is the status and role of women.”

The international development community – the World Bank, the International Finance Corp., the IMF, the United Nations, NGOs like the Gates Foundation and others – have understood for some time that eliminating gender inequality and empowering women is not only vital, but perhaps the key, to reducing poverty and achieving sustainable development around the globe. A Goldman Sachs study found that narrowing the gender gap in employment could raise per capita income across 15 major developing nations by 20 percent by 2030.

Looking at the developed world, an earlier Goldman study found that closing the gender gap in employment would boost GDP in the US by 9 percent, in the Eurozone by 13 percent, and in Japan by 16 percent. A study by the World Economic Forum found that economic gender parity could add $240 billion annually to the GDP of the UK, $285 billion to the gross domestic product (GDP) of Germany, $526 billion to the GDP of Japan, and $1.2 trillion to the GDP of the US. McKinsey has reported that, as a result of women entering the workforce over the past four decades, GDP in the US is about 25 percent higher than it otherwise would have been. A 2015 McKinsey study found that the global economy would grow between $12 trillion and $28 trillion per year if gender pay gaps were reduced or eliminated.

Shifting from macro- to micro-economics, the evidence is equally clear: a substantial body of research now underscores that where women are better represented on corporate boards and in corporate management, companies simply perform better. Studies by Credit Suisse, McKinsey, Morgan Stanley, Thompson Reuters, Robeco SAM and others all reach the same conclusion. The research at this point is beyond compelling; it is overwhelming.

The fundamental reason that women bring so much to the bottom line is that diverse groups make better decisions than non-diverse groups. Having different experiences, skills and perspectives at the table results in groups examining more alternatives, seeking more evidence and substantiation, anticipating different viewpoints, more carefully processing information and improved decision making.

A Harvard study found that teams with more women on them outperformed teams with higher IQ scores on a set of tasks including brainstorming, decision-making, and visual puzzles. Other research has found that more gender-diverse teams are more innovative and are more inclined to experiment and be creative. Having more women on a corporate board has been associated with higher quality earnings and lower probabilities of insolvency and bankruptcy.

In the financial industry, firms with more women decision-makers tend to have higher dividend payouts and higher returns on capital, both of which imply higher returns for lower risk. A 2015 KPMG report found that women-owned and -managed hedge funds had outperformed standard indices every year since 2007.

The evidence is straightforward, to say the least, that advancing women will advance businesses, capital markets, and whole economies. Conversely, it should be increasingly obvious to all of us that gender inequality, that discrimination against women and girls, is just plain dumb economics. Allowing gender disparities to persist, in access to education, in employment, in gender pay gaps, holds individual firms back, holds investment portfolios back, and holds whole economies back. By allowing gender inequality to persist, the global economy essentially has one hand tied behind its back.

Therefore, this issue doesn’t simply affect women and girls; it affects all of us.

But there is a normative component – a moral argument in addition to an economic one. And here too, it is not just a woman’s issue.

As I speak around the country on this, I am often asked why I, as a man, am so focused on gender equality. This question often strikes me as akin to asking a white American during the 1960s why they were supporting the civil rights movement, or a white South African 25-30 years ago why they were supporting Nelson Mandela and the struggle against Apartheid. There is still a system of Jim Crow laws in effect. There is still a system of Apartheid in effect around the globe when it comes to women and girls. In one place, it is honor killings, in another genital mutilation, or trafficking in young girls, or widespread, unprosecuted and unpunished sexual violence, or 63 million girls being denied access to education, or women not being allowed to drive automobiles, or here in the US, women earning 78 cents for every dollar a man earns and holding only 16 percent of Fortune 500 board seats in the year 2017. Gender inequality may take different shapes and forms in different countries and cultures but a continuum of inequality, a continuum of oppression, exists across the globe.

It is the great human rights issue of our age. And as the economic research indicates, it is also the great economic issue of our age. The biggest emerging market on the planet is not China, it is women. Eliminating gender inequality quite literally would usher in the greatest period of economic growth in history. So, advancing women is both the right thing to do and the smart thing to do. For women and for men.

The simple message I try to convey is that we can do something about it. Lawyers, of course, understand this: you can change laws, you can bring claims to enforce the law, you can advance rights through the courts and through public policy. But in addressing gender inequality, I would urge you to consider using another arrow in your quiver, which is perhaps the most powerful arrow you have: Your money.

Through your investments in the market – your 401K plan at work, an IRA, stocks, bonds or mutual funds – you own shares in many of the largest companies in the world. Through these investments, you can change the behavior of these companies. You can make them better.

Several years back, my company decided to find ways to invest in companies that are doing the best when it comes to advancing women into leadership, and we built the first index, and launched the first mutual fund in the world, focused on investing in those the companies. That’s one way to invest in women.

But I want to mention another, because it’s a simple tool that we all have but very few of us use. It’s called the proxy ballot. If you own shares in publicly traded companies, either directly or through mutual funds, you receive – or someone receives on your behalf – a proxy ballot each year in advance of the company’s annual general meeting, and this ballot includes the company’s slate of board nominees.

At Pax, we decided many years ago, across all our funds – and we have 11 of them – that we will not support any board slate unless it includes at least two women. Over the past several years, we have used proxy ballots to oppose more than 1,000 board slates for this reason. But we don’t stop there. We then write a letter to the company explaining why we didn’t support its board slate, and urging them to embrace gender diversity while citing the research that it will make them a stronger company. We try to initiate a dialogue with them, and sometimes we go so far as to file shareholder resolutions with them. In furtherance of this work, a few years back, we partnered with other institutional investors and women’s organizations across the country to form The Thirty Percent Coalition. In response to our efforts over the past four years, more than 100 companies have added women to their boards.

Most of you probably don’t know how your mutual fund manager or 401K administrator or investment advisor votes your proxies. That’s too bad, because I can tell you that 98 percent of them simply rubber-stamp management’s recommendations. What a shame – and what a lost opportunity. If you believe as I do that women should be better represented on corporate boards, but your proxies are rubber-stamping all-male corporate boards, then you are part of the problem, rather than part of the solution, or at least your money is.

When it comes to gender equality, we can make a difference by the way we invest. We can put our money where our mouth is; we can put our money where our values are. We have the power to influence corporate behavior and capital markets to produce better outcomes – not only better for women, but better for individual companies, better for investors, and ultimately better for everyone. We have the power to do this but we need to exercise that power.

It is vitally important that we appreciate the opportunity that is literally staring us in the face. For the sake of our daughters and granddaughters, but for the sake of our sons and grandsons as well, I think it’s imperative that we not ignore this opportunity, but that we seize it.

Joseph Keefe

Joseph Keefe is the president and CEO of Pax World, a Portsmouth-based sustainable investment firm. He previously worked as an attorney in Manchester.

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