By Patricia Lizarraga, managing partner at Hypatia Capital(opens in new tab)
⏰ 4-minute read
Research shows that companies perform better when they have female leaders in addition to males, and yet just 5 percent of all CEOs are female.
Investing in female-focused funds--even just $100--is a viable way to get more investment flowing towards females in leadership(opens in new tab).
And this isn’t just about the principle of equality: Research points to higher stock returns, higher overall profit and higher return on equity for companies with women in leadership roles.
Research tells us that companies with balanced leadership teams(opens in new tab)--i.e. those with a mix of males and females--outperform those with all-male leadership. Yet as of 2018, only 5 percent of Fortune 500 CEOs were women(opens in new tab).
Imagine a world in which 50 percent of CEOs were female.
According to the research, we’d see businesses with more profitability and investors with more stock gains. But given the large gap between where females are(opens in new tab) and where we want to be, turning this vision into reality can seem daunting.
As an investor focused on women in leadership, here’s my response:
We can achieve this vision, if we invest financially in women in leadership.
As of 2015, women controlled more than 50 percent of the nation’s personal wealth(opens in new tab)--and they’re expected to control about two-thirds of it by 2020(opens in new tab).
Thus, if every woman in the U.S. invested $100 in female business leaders this year, it’d total somewhere around $15 billion. Wall Street would take note of the dollars flowing to funds that sponsor women(opens in new tab), especially as these funds outperform their benchmarks. Then, the markets would do their magic of allocating even more capital to female-led companies(opens in new tab).
If every woman in the U.S. invested $100 in female business leaders this year, it’d total somewhere around $15 billion.
So, realize that no matter your role at a company, you can do your part to help women receive more than just 2 percent of venture capital dollars annually(opens in new tab). You can invest in funds that value female leadership. Change is up to us, and it’s easy. All it takes is $100.
Still not convinced it’s important to invest in female leaders and include them on your founding team? Here are the most compelling reasons.
1. Female CEOs = higher returns
A causal relationship between female CEOs and profits isn’t solidly established, but researchers consistently uncover correlation between the two.
A 2017 study by Finnish bank Nordea found that “companies with a female CEO or head of the board of directors had a 25 percent annualized return(opens in new tab) over eight years, compared to 11 percent for the broader worldwide index of firms,” The Balance summarizes.
And back in 2014, a Credit Suisse report concluded that, “Although the sample size for female CEOs compared to that of male CEOs is not statistically significant, it is interesting to note that ROEs(opens in new tab) and price to book value(opens in new tab) are greater when there is a female.”
It continued, “Either female CEOs make companies better, or better companies hire female CEOs, or both.”
2. Women in top management = higher profits and greater admiration
Similarly, a 2016 analysis from the Peterson Institute for International Economics noted that while, “There is no statistically observable impact of having a female CEO … the correlation between women at the C-suite level and firm profitability(opens in new tab) is demonstrated repeatedly.” Analysts projected that a firm at which 30 percent of leaders are women could expect to see a 15 percent boost in profitability.
A firm at which 30 percent of leaders are women could expect to see a 15 percent boost in profitability.
The Credit Suisse report, meanwhile, found that after adjusting for industry bias, companies with more than 15 percent of women in top management had a return on equity (ROE)(opens in new tab) of 14.7 percent. Companies where women represented less than 10 percent of top management had an ROE of just 9.7 percent.
Brand admiration is another benefit of women in management. Companies on Fortune’s “World’s Most Admired companies” list(opens in new tab) have twice as many women in senior management roles(opens in new tab), according to 2017 analysis from Weber Shandwick.
3. Women on boards = higher stock returns, ESG scores and more
Companies with greater gender diversity(opens in new tab) on their boards have higher stock market returns, adjusted for sector bias, Credit Suisse found.
They also tend to get higher scores(opens in new tab) on environmental, social and governance (ESG) criteria(opens in new tab), a set of standards that investors often use to screen companies for ethics and sustainability.
When females are on a company’s remuneration committee(opens in new tab), those companies exhibit a healthier “moderation of executive remuneration growth,” per a 2018 study of Spanish firms.
Companies with females on their remuneration committees exhibit a healthier “moderation of executive remuneration growth."
And finally, “Companies with three or more women in their executive committee had better results on the nine dimensions of organizational performance(opens in new tab)” ranging from accountability to innovation, according to a 2017 McKinsey summary of the firm’s research on this topic.
Okay, I’m ready to invest my $100 in female founders. How do I do it?
The easiest way is to contribute to an exchange-traded fund (ETF)(opens in new tab) that invests in companies that have more women in senior management. The most well-known female-focused ETF is the SPDR SSGA Gender Diversity Index ETF(opens in new tab), or the SHE ETF. Currently, the fund has about $250 million in assets, but as mentioned, it has the potential to manage more than $15 billion if every woman in the U.S. were to invest $100.
If you haven’t already, learn how to open a brokerage account(opens in new tab) and start investing. In addition to the SHE ETF, you might also consider the WOMN ETF(opens in new tab) or the Pax Ellevate Global Women’s Leadership Fund(opens in new tab).
The bottom line
If we drive capital into these female-focused funds, and if the funds continue to outperform, Wall Street will find other ways to get funds to women in leadership at all levels. Including women-focused VC funds. And then we’ll see some major change.
Hear from Lizzaraga and other female leaders at SuiteWorld19(opens in new tab), a conference about growing beyond in business.
More on female founders and VCs: