Today is International Women's Day. Yesterday State Street installed the statue of a young woman confronting the iconic charging bull, stressing the importance of gender diversity and equality in the workplace.
The message here is that companies need to have more gender diversity on their board of directors. We already believed that, not because State Street said so, and not because activists came together to have National Woman's Day declared a holiday. We believed it because our research told us to.
In the creation account in Genesis 1-2 many things are declared to be 'good', but only one thing is declared to be 'not good'. "And God said, it is not good for the man to be alone." This problem was not solved by creating another man, implying that the thing that was bad about Adam's aloneness was not just that there was only one human, but that there was only one kind of human. Things are not good when only masculinity is present.
That's why when we constructed our US stock index (VCUSX), one of the important factors we looked at was the question of women on boards of directors. Ultimately, we found that companies without any women on the board of directors are at a disadvantage. Over the long-term, 'Adam alone' boards underperform boards with at least one woman. Other research suggests that women are more likely to question the CEOs next glorious five-year plan for world market domination. This is consistent with the fact that having women on the board increased after the stock bubble of the industry in question burst. A gender diverse board appears to play the voice of caution during times of managerial ambition and euphoria. So we added a rule to our indices to penalize companies without women on their board.
At the top end of the cap weighted universe this doesn't matter much. The vast majority of big companies have at least some gender diversity at the board level. However, moving down into mid and small-cap space, women become scarcer and scarcer. This leaves opportunity for gender diversity (in concert with the rest of the suite of good shareholder capitalism governance best practices) to add value to our index.
When we created our rules for stock selection, we included one which penalize companies that have 'Adam alone' boards. It's not the only factor we analyze. Nor is it even the biggest factor we look at. The data suggests that it does matter, and in that they only illustrate what we already knew from an even higher Authority. We believe that efficient capital allocation enables people to do what they are made to do: to be creative; to produce things of value. Is that just a male thing? Of course not. Can men do it as well when they are alone? Looks like the answer is no. Shareholder value is about maximizing human productivity and how can we accomplish that with half of our talent pool left out?
For more information on the Leadership and Governance factors in Vident Core US Stock Index, please visit the VCUSX Information Page