State Street Global Advisors: Gender diversity as an opportunity to reduce investment risks

In 2016, in response to global megatrends related to women’s empowerment and leadership, emerging research and client interest, State Street Global Advisors (SSGA), one of the world’s largest asset managers,1 implemented a series of initiatives to advance gender diversity in corporate leadership. SSGA believed these efforts could help reduce portfolio risk and promote gender diversity in line with its mission: investing responsibly enables economic prosperity and social progress.2

Catalysts for advancing gender diversity at SSGA

A growing body of research on gender diversity and business outcomes has been pivotal for informing SSGA’s work to promote gender diversity. Collectively, these studies demonstrate that companies with higher rates of female participation at the senior manager level experience benefit from:

  • Better return on equity,
  • Reduced volatility, and  
  • Fewer governance-related issues such as bribery, corruption, shareholder battles and fraud.3 4

Despite evidence demonstrating positive returns from female leadership, few women serve on corporate boards: women hold only 21% of board seats for S&P 500 listed companies and represent only 26.5% of executive and senior level managers.5 From SSGA’s perspective, this represents a portfolio risk and an opportunity to support women in leadership.

Three-pronged response to promote gender diversity

Promoting gender diversity in corporate leadership has become a priority for SSGA at all levels: the CEO, clients and shareholders.6 SSGA believes companies that support gender diversity throughout the organization, but particularly in senior management roles, are better positioned to manage risks and generate long-term value.7 To take advantage of this opportunity, SSGA implemented three initiatives:8

(1)   Initiating the Fearless Girl Campaign and SSGA CEO Ron O’Hanley’s call on Corporate Boards,

(2)   Directly engaging and encouraging companies to embrace gender diversity through SSGA’s Asset Stewardship program9 and

(3)   Providing SSGA clients exposure to an index of companies that have implemented gender diversity at senior management levels.

Fearless girl campaign:

SSGA aimed to raise awareness and drive conversations around the importance of improving gender diversity in corporate leadership roles. This was achieved through its “Fearless Girl” campaign, in which the statue of a little girl was placed in the heart of the world’s financial center the day before the 2017 celebration of International Women’s Day. Ron O’Hanley, CEO of SSGA, reported that the “Fearless Girl” reminds corporations across the globe that promoting more women to leadership positions contributes to overall performance and strengthens the economy.10

Asset stewardship program:

Led by SSGA’s Corporate Governance team, SSGA promotes long-term value in its clients’ investments through the Asset Stewardship program. As one of the largest index managers in the world, SSGA’s Asset Stewardship program leverages both company engagement and its voting power to influence board quality and company policy. SSGA prefers to drive gender diversity through active engagement with corporate and board leadership and, in 2017, SSGA prioritized diversity as a key topic for engaging with their portfolio companies. However, if companies fail to increase the number of women on their boards after such active engagement on the issue, SSGA will use their proxy voting power to effect change at companies.  SSGA adopted a new voting guideline that expects boards of Australian Securities Exchange 300 (ASX 300), Financial Times Stock Exchange 350 (FTSE 350) and Russell 3000 listed companies to include at least one female director. In turn, SSGA anticipates these companies will experience improved financial performance benefitting from increased diversity.

A Gender diversity index:

In 2016, one of SSGA’s largest clients expressed its desire to invest in companies exhibiting both strong returns and active efforts to promote gender diversity across their senior management and corporate board. In response, the company launched the proprietary SSGA Gender Diversity Index Exchange Traded Fund (ETF), with the ticker symbol SHE, using a cross-functional and collaborative development approach based on several key criteria (see box).  This fund currently has USD $330 million in assets11 and continues to regularly attract new clients. SSGA is monitoring the fund’s financial performance in order to validate and support research findings on gender diversity as well as promote long-term value for its clients.

SSGA Gender Diversity Index (SHE) Criteria

The index identifies companies with the highest levels of female participation at the top relative to their sector peers. The following criteria are integrated into the index methodology (Wang, 2017):

  • If a stock ranks in the top 10% by market cap in its sector for any of the ratios (directors, senior managers, or executives) and has at least one female board member or a female CEO or chairperson, it is included in the portfolio;
  • SSGA ranks stocks by each of the three variables and take the top 10% by market cap. This results in three 10% sets. They take the union of the three sets.
  • SSGA selects companies within the union that have at least one female board member or at least one female CEO/chair)
  • All securities are market-cap weighted.

The Business Outcomes

By responding to a changing business environment, SSGA is helping to reduce portfolio risk for clients and themselves by promoting gender diversity in corporate leadership. SSGA’s three-pronged response has helped: increase awareness of the impact of gender diversity on company performance; attract clients who want to promote gender diversity; and promote the long-term value for clients’ investments.

These outcomes embody SSGA’s mission of considering both economic and social prosperity. Further, these actions on gender diversity provide SSGA with a competitive advantage. Shortly after the Fearless Girl campaign was launched, Blackrock publicly stated a similar position on gender diversity.12 While still in the early phases of its gender diversity campaign, SSGA will continue to monitor its outcomes through the increasing presence of women on corporate boards as well as the financial performance of the SHE index.

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1- State Street Global Advisors (SSGA), is one of the world's largest asset managers, with $2.6 trillion under management. SSGA is a pioneer in index investing and has capabilities spanning both traditional and non-traditional asset classes across both active and index investing.

2- Our Philosophy. (n.d.). Retrieved from State Street Global Advisors: https://www.ssga.com/global/en/about-us/what-we-do/our-philosophy.html

3- Wang, T. (2017). Social Change through Index Investing: A Gender Diversity Index. The Journal of Index Investing, 30-40.

4- SSGA (2017). SSGA’s Guidance on Enhancing Gender Diversity on Boards.

5- Catalyst. (2017). Pyramid: Women in S&P 500 Companies, http://www.catalyst.org/knowledge/women-sp-500-companies

6-  Overview (Who we are). (n.d.). Retrieved from State Street Global Advisors: https://www.ssga.com/global/en/about-us/who-we-are/overview.html

7- SSGA. (2016). Annual Stewardship Report.

8- SSGA. (2016). Annual Stewardship Report.

9- SSGA. (2017). Better Together: SPDR SSGA Gender Diversity Index ETF (SHE).

10- O'Hanley, R. P. (2017). Long-Term Value Begins at the Board: The power and potential of active asset stewardship. Boston: State Street Global Advisors.

11- Bloomberg: As of 9/1/17

12- Chasan, E. (2017, July 13). BlackRock Puts Its Votes Behind Proposals to Get Women on Boards. Retrieved from Bloomberg: https://www.bloomberg.com/news/articles/2017-07-14/blackrock-puts-its-votes-behind-proposals-to-get-women-on-boards