Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
After a long career in investment banking and asset management, I find it hard that gender balance in executive management is still a long way off, maybe even unattainable, and therefore handicapping companies.
As an investor, I have sat in hundreds of meetings with management teams. I used to look forward to posing one particular question about culture, a simple one that often took them by surprise and can reveal a lot about their companies: how do you treat your employees?
I usually found that men would give a one-dimensional response that highlighted rigid evaluation processes, being lean or keeping salary expenses low. They would neglect to say anything about non-financial aspects that generate long-term value, such as what it takes to attract and secure the best talent.
Female executives — who were few and far between — were more inclined to answer the same question with holistic responses about safety, flexibility, diversity and inclusion, competitive pay and corporate social responsibility in the wider community. Areas that are all growing in importance for attracting the best people who, at the end of the day, will create future shareholder returns.
As the management thinker Peter Drucker said, “culture eats strategy for breakfast”. This does not mean strategy is insignificant, but that an empowering culture is paramount for success.
When I interrogate the management of our holding companies they normally expect questions on the hard components that drive shareholder value — sales, profit margins, capital expenditure, costs and tax rates. However, behind these tangibles are people. Individuals who make decisions on strategic and tactical levels. Without the best people, you risk underachievement.
My anecdotal evidence is largely supported by research, which shows that involving both men and women in decision-making broadens perspectives, increases creativity and innovation, diversifies talent and competence pools, and reduces conflicts. It improves both process and outcome for the benefit of shareholders and other stakeholders.
Women are better able to deal with difficult personal relationships, pay closer attention to people’s needs, are inclined towards prevention and resolution of conflicts, more readily share views with others and make efforts to reach agreement. They also monitor and give feedback more often.
Shareholder value can be measured relatively easily but its creation is highly complex. Behind the bottom line is a web of multidisciplinary forces such as science, psychology, finance and even luck and serendipity. These demand diversity of thought and should make it a no-brainer to include both women and men in senior management roles.
It is no secret that investors look for companies to create and sustain value. If we reflect on the chief financial officer’s role in this, and the speed with which it has shifted from reporting the annual accounts to now also covering the company’s impact on the health of our planet, I see this as both fascinating and particularly well-suited to women. Whereas a company previously only required profitability for a licence to operate, today it must also act sustainably. This means, for example, not using natural resources faster than they can be replenished.
The idea that women are a good fit for the chief financial officer role is also supported by facts.
A 2019 study by S&P Global Market Intelligence of 6,000 companies in the Russell 3,000 index over 17 years found that, within 24 months of appointing a female chief financial officer, companies’ profits increased by an average 6 per cent, and stock market returns improved by 8 per cent, compared with their male predecessors.
Faced with this evidence, it is puzzling why more women are not finance chiefs. Although we have reached a record high this year with 90 female finance chiefs in the S&P 500 — 18 per cent of companies — I believe this proportion should be inverted. Pressure from investors for greater gender parity must persist.
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Peer pressure will also benefit women as prominent companies such as Microsoft, Nvidia, Cisco, Staples, GE, Diageo, Estee Lauder, GM and Coca-Cola lead the way with female chief financial officers — and more will follow.
A 2017 report from Harvard Law School found that about a third of chief financial officers at 289 large-cap US companies surveyed held outside board positions. Therefore, not only are women well-suited for the position, but the finance chief role is a good stepping stone for women who want to reach the pinnacle of corporations.
This makes it even more important that the relatively low representation of women as finance chiefs, despite their aptitude and strong results, becomes a thing of the past.
The writer is investment director at Skagen Funds