New Morgan Stanley Research study finds highly gender-diverse companies outperform low gender-diverse companies.
New York – New research has found empirical data that shows gender diversity does make a difference, particularly when it comes to a company’s performance in that highly gender diverse companies have a better return on equity (ROE) and lower volatility than those ranked low in diversity.
Morgan Stanley has long been committed to gender diversity with its many diversity oriented programs and policies aimed at attracting, retaining and developing women at all levels. Not only is it the socially responsible thing to do, but there are a number of academic studies showing gender diversity makes good business sense, giving companies that are more gender diverse a competitive edge over less diverse rivals.
Using that principle as a starting point, Chief U.S. Equity Strategist Adam Parker and his team set out to find quantitative data that could support those earlier studies. What they found is contained in a new research report titled: “Putting Gender Diversity to Work: Better Fundamentals, Less Volatility.”
Creating a gender diversity model, they determined that on average higher gender diverse companies have outperformed their low diversity sector peers for the past five years and deliver a slightly higher return on equity (ROE) with lower ROE volatility than low diversity companies in their sector.
“There’s a lot of academic research out there that says more diverse an employee base is, the better it is in decision making,” says Parker. “The main thing about this report is that we’ve advanced the ball in this research by building a data base and a framework by providing some empirical evidence.”
To create a gender diversity model, Parker and his team came up with five themes: equality in pay, empowerment, meaning number of women in c-suites and on key committees, representation of women at different levels, from board members and senior executives to regular employees, work life balance programs and diversity policies. They then weighted those categories in importance putting pay parity and empowerment at the top and policies at the bottom.
“Our main conclusion is that higher gender diversity companies meaningfully outperformed lower gender diversity companies on a risk adjusted basis over the past five years,” said Parker. “By contrast the stocks that have poor gender diversity rankings have the highest probability of experiencing a meaningful drawdown.”
Global Head of Diversity and Inclusion Susan Reid says the new report confirms what we’ve seen in previous research drawing that direct link between commercial success for firms and the ratio of women at those firms.
“This new research is extremely useful because it points to some of the key factors that matter in making sure we don’t just have diversity but that the diverse talent is actually utilized,” said Reid. “One of the things the research points to is that representation is not enough. You also have to have empowerment. You need women in leadership roles that are impactful.”
Reid pointed out that the Firm has been committed to improving the representation of women at all levels for several years.
“We’re definitely seeing progress, but progress takes time,” Reid points out. “We’re not changing the face of the Firm overnight, but progress is there. One of the things I’m excited about is that when I look at the past year, our rate of hiring of women is several percentage points above current rate of representation. Assuming we continue that trend and that we’re also able to address some of the other things that matter to women over time we’ll definitely see real change in terms of female representation.”
To achieve this, Reid says that Morgan Stanley is running a number of different programs to attract women at various levels of their careers.
“On the campus level we have programs like ’Early Insights’ where we bring in women for a day give them an opportunity to get a behind the scenes look at who we are and what we do to advance women,” she adds. “We get a very high participation rate and it also helps us in our conversion rate from perspective hires to summer interns and from interns to full time hires.”
At the mid-level, Reid say the Firm’s Lateral Recruiting Team is looking for experienced hires.
“We also have divisional recruiting efforts focused on bringing in more women,” she says. “For example, in the Wealth Management space there’s very heavy emphasis in recruiting women as Financial Advisors and into management roles. That’s replicated in other parts of the business as well.”
Wealth Management takes this issue so seriously it has its own Head of Diversity and Inclusion, Kara Underwood.
“As more and more wealth is being created and controlled by women, we want to recruit more women into careers in the best kept secret on Wall Street, Wealth Management.” said Underwood. “We track trends in sourcing, hiring, promotion and talent development, and continuously look for ways to improve women in key roles.
“Biannually, we host our top performing female advisors and managers at our Women’s Leadership Summit to reflect on progress and set the agenda for the coming year,” she added. “Our commitment is unwavering and we want to be seen as the firm that understands the nuanced needs of female investors and employees.”
One of those initiatives showcasing a variety of women in different roles is the MAKERS at Morgan Stanley program. Currently this is a Wealth Management initiative although discussions have been held on the feasibility of taking it firm-wide. In its third year, MAKERS has recognized 46 women in various roles in the field and in the home office, reflecting the many pathways women can contribute to the business.
According to Reid, once women join the Firm, there are a number of development programs in place to help them at various levels of their careers, from the VP, ED and MD levels to provide guidance on how to move to the next rung, including programs dedicated to finding mentors and sponsors.
One program Reid is especially proud of is the Firm’s Return to Work Program, which she runs.
“It’s a global initiative, run all over the world, and it has given us the opportunity to identify talented women who have taken a career break for any number of reasons and to offer them an opportunity to return back to the workforce,” says Reid. “We’ve seen tremendous success with that program and we run it every region.”
Those efforts and others have resulted in the Firm being recognized as one of Top 100 Best Companies by Working Mother Magazine and The Times’ Top 50 Employers for Women in the U.K.
For more information read "Why It Pays to Invest in Gender Diversity" which provides additional details on how Morgan Stanley Research created this proprietary quantitative framework on gender diversity.