GENDER LENS INVESTING
“The business case for women on boards is so compelling that some are literally banking on it.”
- Brande Stellings, VP of Corporate Board Services, Catalyst
August 14, 2015
Sustainable investing, at its core, seeks to take advantage of the massive economic opportunities that
proper environmental, social, and governance management have. Through this, we try to influence
companies to be more aware of their ESG impacts—and this form of investing is directly linked to
better financial performance. Fulcrum Capital pays special attention to indicators within the realms of
environment, social, and governance that we see as influential, and new indicators for social change
and firm performance are appearing.
Enter Gender Lens. Gender Lens is a method of investing for which you look at your investment
portfolio through a “lens” of gender. This allows you to see for perhaps the first time how equitable
your companies are when it comes to gender representation. The term “Gender Lens” is extremely
new, and has only truly gained ground in the past few years. However, the concept of tracking female
representation in companies has existed and been implemented for nearly a decade. This means that
for the first time, we have big data on the long term impact of having an equitable gender distribution
in companies.
Gender Lens itself refers to investment with three
primary goals: increasing access to capital for women
“Investing in women makes
entrepreneurs and businesses that have women in
financial sense”
leadership positions, promoting gender equity in the
workplace, and increasing the number of products and
services that benefit women and girls. This is not a sectorbased investment; instead, investing in women cuts across all sectors. This reflects a series of
converging trends in the world and in investment management, including the increasing influence of
women on the economy, an increased focus on female empowerment, and a growth of women in
senior positions—today, 19.2 percent of S&P 500 board seats are held by women, compared to 14.5
percent in 2007.
There are several ways to approach the case for investing in women. All of the goals above have an
aspect of social equality associated with them—while this is an intention of any sustainable
investment, the business case for Gender Lens is also compelling. That is to say that investing in
women makes financial sense. At Fulcrum, we value the goal of gender equity in the workplace as an
integral part of Gender Lens because it links so well to bettered financial performance. So, the Fulcrum
Approach to Gender Lens investing is investing in companies that have an equitable representation of
women in senior management and on the board of directors. Long term commitment to equitability is
also demonstrated through company initiatives to tackle gender diversity.
The growing movement of female-focused investing in the past decade has resulted in an increase of
studies and publications highlighting this connection between female leadership in companies and
better financial performance. It’s important to note that when we say “female leadership,” we refer to
a more even representation of both genders; currently, there are significantly more men than women
in company leadership positions, and research is showing that even a slight adjustment towards a 501
50 middle ground results in massive benefits for the company performance. For example, in
Luxembourg, researchers found that a 10 percent increase of women in top management positions
increases banks’ future return on equity by more that 3 percent, and that this positive relationship is
almost twice as large during global financial crises (Reinert, 2015). Fortune 500 companies with the
highest representation of female board directors have higher performance and more stability than
those with lower representation—on the scale of a 66 percent increase in Return on Invested Capital
from the bottom quartile of representation to the top
quartile (Catalyst, 2008). There are papers that indicate
little correlation between gender diversity and financial
“The best clue to a nation’s growth
performance, but these do find positive correlation in
countries that have greater gender parity, speaking to the
and development potential is the
importance of a larger value shift (Post, 2014).
status and role of women”
-David Landes, author of “The Wealth and
Other research, instead of focusing on numeric returns,
Poverty of Nations”
looked at the intangible assets of female leadership. This
includes correlation between female presence and lower
risk (Credit Suisse, 2014). Additionally, female representation on the board of directors can decrease
fraud, the severity of fraud, and the market response to fraud (Cumming, 2015).
There is a psychological basis for these findings: on the whole, women tend to show more attention to
risk management and long term outcomes. These findings can also speak to the importance of overall
diversity in companies, including racial, age, and sexual orientation. Firms with more diverse boards
are more likely to pay dividends at a greater amount of dividend per share than counterparts (Harjoto,
2014). As a whole, diversity can counteract “groupthink” on boards, the phenomenon when individuals
are unable to separate from the group and end up making decisions that are worse for the company.
However, while gender diversity is associated with risk management, some other indicators of diversity
actually contribute to higher company risk (Setiyono, 2014). Diversity is much harder to quantify than
female representation, and the impact of women tends to be larger than the impact of other diversity
factors. As such, the specificity of Gender Lens investing is still extremely useful.
Overall, Fulcrum has compiled a database of over fifty peer reviewed research papers showing a
positive correlation between female representation in companies and better company performance.
Of these papers, about half looked at the correlation between board diversity and firm performance—
board diversity tends to have a noticeable impact on firm performance, and is an easily quantifiable
indicator. So what makes a good board of directors? A gender representation of half women and half
men is clearly ideal, but the concept of a “critical mass” of three women on the board of directors
exists. This is based on psychology, and is heavily dependent on the number of members in a company
or organization. The thinking is that having three women allows for diversity of opinions and for the
women to disagree instead of feeling obliged to support each other. This changes the female voice
from being “representative of all women” to being individual, decision making entities.
This critical mass is reflected in financial performance, too: Return on Invested Capital increases 60
percent between Fortune 500 companies with no women on the board and those with at least three.
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Likewise, Return on Sales increases 84 percent (Catalyst, 2011). Another report examining 4,100 public
companies concluded that, on average, companies with gender-diverse boards outperform companies
with no women on the boards, and have lower volatility (Thomson Reuters, 2013). Female
representation in companies clearly correlates to better firm performance, and Gender Lens investing
can be used to assess to what extent, as well as to what extent this impacts the role of women in the
company.
Let’s highlight some of the best performing companies, through a Gender Lens, in the Fulcrum model
portfolio. Wells Fargo, for example, has an employee base of 58 percent women--their board has seven
women on it, making up 44 percent of the total. 30 percent of their executives are women. These are
fantastic numbers, as are Wells Fargo’s growth numbers: they have a 5 year growth in dividends of
47.2 percent, and a Compound Annual Growth Rate (CAGR) of 18.56 percent. Pepsico has four women
on the board, constituting 29 percent of board members, and 30 percent female executives; they also
have a female CEO. While their 5 year dividend growth rate is not as extravagant as Wells Fargo’s, it is
respectable at 7.8 percent. Their CAGR is 2.52 percent. Both of these stocks are growing, and both
companies have demonstrated commitment to female growth in their workforces, as well as strong
female leadership and gender equity.
This long term commitment to improving gender diversity in the total workforce is vital—performance
in firms with female leadership increases with the total share of female workers (Flabbi, 2014). This is
consistent with the concept that female leaders better understand productivity of female workers.
However, though it has growth, the overall representation of women in companies is still fairly dismal.
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Catalyst, a research group, shows that even though the S&P 500 index has an average workforce of 45
percent women, this representation severely drops towards the top of the company. The wage gap is
also still dramatic—women are continuing to earn 77 cents on the dollar, less for Hispanic and African
American women. However, women also control the spending of about $12 trillion of the $18 trillion
global GDP. Not only does it make economic sense to empower women within company hierarchies,
but they should also gain the status of major financial decision makers.
When this Gender Lens is applied to our model portfolio, we see some exciting trends: about half of
our firms have at least three women on the board of directors, and we have a higher average
representation of women on the board of directors than all companies in the S&P 500 index. There is
huge potential in this information, but Gender Lens investing isn’t just about analyzing already existing
portfolios. Incorporating gender analysis into due diligence is something that we, and many other
investors, are working to do.
Currently the primary analysis done on gender equity is through basic counting of the number of
women in the company, on the board, and in senior management positions. However, looking at the
practices, workplace treatment of women, and programs in place all help paint this Gender Lens as
well. Along with these, we need to identify additional data sources that will help determine the
influence of diversity on firm performance.
One of the goals of sustainable investing is to influence companies to be more environmentally,
socially, and governmentally responsible—this needs to be represented in action and in the indicators
that Fulcrum looks at. By applying a Gender Lens to the future companies that we consider, we will
achieve more financial stability and long term growth in our portfolio, and will also influence
companies to incorporate gender diversity. Empowering women to be great leaders and in positions of
authority is a vital part of advancing the economy, and Fulcrum intends to be at the front of this
movement.
Reading list:
Diversity Matters, 2014 (McKinsey)
 The Bottom Line: Corporate Performance and Women’s Representation on Boards, 2011
(Catalyst)
 The CS Gender 3000: Women in Senior Management, 2014 (Credit Suisse)
 Gender Equality as an Investment Concept, 2014 (Pax World Investments)

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