Better profit margins, higher return on equity and superior share market returns are hallmarks of listed companies with more diverse executive teams, new research shows.
Companies with more diverse senior management teams have about 30% higher profit margins on average in the following 12 months than companies with lower gender diversity in any given year, the research shows.
More diverse senior management teams can generate cumulative return-on-equity almost 30% higher than their lower-diversity counterparts over a 5-year period, the study finds.
Meanwhile, investing in high diversity firms can generate a potential annual return premium of 2.5% for diverse boards and a potential 4% annual return premium for diverse senior management, relative to low diversity firms, the results show.
More diverse executive teams create better performance outcomes, the study concludes, drawing on a global data set spanning more than 30 countries and over 2500 large cap companies covering a time period spanning more than a decade.
While correlations between corporate female participation and better investor outcomes have been highlighted before, Realindex Investments’ new study, ‘Beyond lip service: tracking the impact of the gender diversity gap’, looks beyond the easy to find board-level diversity data and into executive team composition for a clearer link.
Read the full research paper here.
While the link between female participation and better performance remains out of the scope of this research, the Realindex team highlights that quality companies with high performing management teams are also likely to encourage diversity of thinking, which can lead to less turnover and better results in the long-term.
Considering Environmental, Social and governance inputs such as gender diversity can be useful for investors who take a view that management quality is an important driver of performance because it can lead to better decisions, the Realindex team suggests.
Realindex Investments is the global systematic investment manager of the First Sentier Investors Group which combines powerful data analysis with human insight and a strong ESG focus to deliver investment performance. Find out more about Realindex’s approach to investing here.
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