As a growing number of companies acknowledge the strengths of a truly diverse workforce, an area too often overlooked is executive team diversity.
The business case for workforce diversity is compelling and some companies have gone to great lengths to define a diversity and inclusion strategy. But progress is slow at the highest ranks of companies, arguably where the most important strategic and operational decisions are executed. Where workforce data is available, it often illustrates the slow progress in building racial and ethnic diversity into the C-suite. Too frequently the representation of non-white employees and women rapidly diminishes with rank.
A growing body of research indicates a positive relationship between firm value and the percentage of women and minorities in senior leadership roles. Diversity of gender, and also of race and ethnicity, is critical to a well-balanced leadership team. A McKinsey & Company report found that companies in the top quartile for gender or racial ethnicity are more likely to financially outperform national industry medians. Companies with greater ethnic diversity were 35 percent more likely to outperform.
Diversity in the boardroom has improved in recent years. Asset owners and institutional investors have played an important role in this success through dialogue and the proxy. However, expanding diversity in the C-Suite has not seen similar success. In 2018, the number of woman CEOs declined 25 percent, to just 24. The social and business cases for diversity are well known, but barriers to opportunity persist. Only 9 percent of top executive roles in the Russell 3000 are held by women. In addition, rather than holding executive roles that are stepping stones to the CEO position, women are more likely to be found in Human Resources Officer, General Counsel or Chief Administrative Officer roles. The absence of clear strategies to reach gender parity is also slowing progress. U.S. companies lag behind global peers in 18 developed European markets and Canada, according to ISS, in gender diversity policy disclosure for senior management positions.
To address this growing concern, Trillium filed executive leadership proposals at BorgWarner (co-filed with Impax Asset Management), Carter’s, BNY Mellon, Marathon Petroleum and Newell Brands. We asked for an assessment of the diversity in senior leadership ranks and clear plans to expand diversity, inclusive of gender, race and ethnicity. Citigroup, Symantec and BP are leaders that already have set public goals to increase women in leadership, recognizing diversity and inclusion as major drivers for talent acquisition, retention and performance. It is time more companies set goals, measure and report progress, and hold executives accountable to improving diversity and inclusion in senior roles.
This is not a recommendation to buy or sell any of the securities mentioned. It should not be assumed that investments in such securities have been or will be profitable. The specific securities were selected on an objective basis and do not represent all of the securities purchased, sold or recommended for advisory clients.