Latest posts by Lara Dugdale (see all)
- 5th Annual Financial Innovation Summit - 02 Nov 2016
- Chris Macdonald left Brooks Macdonald wealth management - 25 Oct 2016
- Are women better finance bosses than men? - 27 Sep 2016
There’s a common notion among investors that companies with women in senior positions regularly outperform. The question is how are connected female CEO and market returns?
On one hand, a company with a woman in charge has reached the peak of corporate team diversity, on the other hand, however, some investors believe that females are often put in charge of struggling companies, running off the “glass cliff.”
Market returns have confirmed that both points are true, demonstrating that female CEOs often provide better performance, but they are also frequently the ones handed a difficult job to start.
The management professor at Utah State University, Alison Cook, stated that women sign up for tough tasks because they try to grab one of their only opportunities, while males steer clear, as they know “their chances of succeeding and being the hero are slim.”
According to Bloomberg, 5% of the companies in the index had a female CEO.
The dispute, however, starts gathering pace as investors invest huge money into funds and indexes with corporate diversity-based strategies.
According to investment firm Veris Wealth Partners, assets linked to equity and debt products with a gender-based strategy have skyrocketed 150% to $560 million in the last few months.
’Least Crowded Trade’
This year, the Pax Ellevate Global Women’s Index Fund generated over $100 million in assets this year. The fund invests mainly in companies having at least 30% females on their boards and 25% females on senior management. In the two years through Aug. 31, the fund’s institutional class shares returned 2.36 percent, compared to the MSCI World Index’s 1.13 percent return over that period.
Sallie Krawcheck, a CEO and Co-Founder of Ellevest, said that when choosing companies for the fund, she gives companies with a female CEO a “smallish” benefit, in comparison with the weighting for women on boards or in senior management overall.
“There is, to my mind, absolutely no doubt that there’s a glass cliff,” commented Krawcheck, stressing that she was appointed as CEO of Smith Barney at the time when the business was not doing well and the company needed a “different” approach. She also said that women are often demanded to an “impossible job”, resorting to the experience of CEOs like Yahoo!
According to research provided by Bloomberg, companies having women in high positions have a tendency for outperforming. One of the 16 female CEOs in the S&P 500 index who have held the job for at least three years, 75 % have outperformed the index since they took over.
However, companies appointing female CEOs often underperform. Bloomberg reports that around 38% of the S&P 500 companies where women outperformed, had negative market returns in the year before she started or in her following year.
The vice president of product for online trading algorithm development platform Quantopian Inc. commented: It’s a challenging question: Are females hired only when companies are doing worse, so they have a greater opportunity for outperformance?”
Since 2013, Robin has been working on an algorithm testing investment in female CEOs. The strategy uses an equal-weighted portfolio that buys shares of a Fortune 1000 company when a female CEO is appointed and sells them when she leaves. The portfolio outperformed the S&P 500 index by 217 percent from 2002 to 2014.
“Historically, had you invested in female CEOs, you would have outperformed the market,” said Rubin.
The results were shocking, and the observers ventured to assume that there could be another reason behind the outperformance. She then removed Yahoo from the test to check whether the returns could be explained by the company’s investment in Alibaba Group Holding Ltd. The portfolio still outperformed the S&P 500 by 197%.
The CEO of executive recruitment firm Boyden World Corp. in Chicago, Trina Gordon, claimed that women are frequently aware of the pitfalls of the cliff, as they are obliged to do an enormous load of due diligence before assuming their position. Gordon called such women “very calculated risk-takers.”