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Sallie Krawcheck: Why Investing In Women Is Capitalism At Work
This article was originally featured on ForbesWoman.
Sallie Krawcheck, the former Bank of America and Citigroupexecutive, is stepping up her efforts to promote women in business and leadership. She has recently teamed up with Pax WorldManagement to launch the first index fund that invests in the advancement of women.
The Pax Global Women’s Leadership Index Fund focuses on top companies that have a significant proportion of women in senior leadership positions – betting that gender diversity at the top can drive superior corporate performance and ultimately, significant returns for investors. It’s the first of its kind, a mutual fund that gives investment priority to stocks of corporations with favorable metrics regarding women in leadership positions.
Krawcheck has also rebranded 85 Broads, the networking community she acquired last year. The new venture is called Ellevate and Krawcheck is hoping that it will be a powerful resource for women looking to ascend in their careers.
I spoke with Krawcheck about the impact she ultimately hopes to have in advancing women’s leadership.
You’ve launched the only mutual fund in the United States that focuses oninvesting in the highest-rated companies in the world in advancing women’s leadership. Why now?
Why not now? The time is right.
We’ve launched the Pax Ellevate Global Women’s Index Fund to enable investors capture the investment returns that we believe diversity can drive; we’ve launched it because it will direct investor capital to these companies, to shine some light on the issue; and we’ve launched it because emerging investors (think women and younger investors) are asking for these types of investments. Increasingly they look to invest with a goal of both fair returns and in a way that expresses their values. Many of them report that they want to invest in companies with greater gender diversity, in part because of the positive trickle-down effect to the rest of the company, through lowered gender pay disparities.
This isn’t an “isn’t that nice” fund. This really represents capitalism at work, addressing a business opportunity.
How does having more women in the highest levels of management deliver better stockholder returns over time?
Great question. I can answer this from both personal experience and based on the research. I have worked on a number of senior management teams, both diverse ones and not-so-diverse ones. I found that the teams with greater diversity of perspective may have taken longer to come to decisions, but their decisions were took into account a greater array of factors and thus were often better decisions.
And research shows that greater gender diversity in senior leadership teams is associated with higher returns on capital, lower risk, greater client focus, greater long-term focus and even more innovation. Perhaps not surprisingly, then, we found that as we sifted through the companies that rose to the top on management diversity, they turned out to be high-quality companies. They appear to not just “do diversity right,” but any number of things (including diversity) right. As a result, we believe these companies will provide fair long-term returns for investors, with lowered risk, over time.
Why has gender diversity at the top been an overlooked metric by Wall Street? How does metric provide Ellevate with the type of advantage that thousands of funds lack? Was this a metric you looked at during your tenure on Wall Street?
Answer: No, this is absolutely was not a metric that I looked at when I was a research analyst. I can certainly joke that, given that I covered the very male business of Wall Street itself, there wasn’t very much gender diversity to look for!
But I do strive to keep learning over my career. And this is a concept and research I have been drawn to, as I’ve thought through some of the factors that could have reduced the severity of the financial crisis. I think there’s no doubt that less groupthink – in other words, more diversity of thought – would have caused a less severe crisis.
Investors have looked at management quality as a driver of corporate performance, and in turn investor returns, for as long as anyone has been investing. This puts a finer point on a key driver of management quality, in my view.
What are a few examples of companies that have gained an advantage because of diversity at the top, moving ahead of competitors?
I can tell you that some of the top holdings of the fund are GE, Procter and Gamble,Xerox XRX -0.72%, Aetna AET +0.63% and PepsiCo. I think you would agree that these are companies that are leaders in their fields. But I also don’t think many of would think of many of them as “female companies;” they are instead strong, global companies who have more diverse leadership teams than the average. The typical company in the fund has a Board composition that is 31% female and a management team that is 24% female, as compared to 11% on average for each globally.
What advice would you give to Wall Street when it comes to looking at diversity both within their own talent ranks as well as identifying emerging business opportunities?
So many managers describe their managerial role as one of “putting the best person in the job.” I used to try instead to “put the best team in place.” I found that those two things could lead to very different personnel decisions; that was in part because of my own biases in believing that certain types of people (ok, people like me) would be most effective in those jobs. When instead I looked to round out the team — with different types of people with different skills, backgrounds and temperaments – I stopped trying to hire myself again and again.
You’ve also rebranded the professional networking community, 85 Broads, under the Ellevate name. What’s your larger, long-term vision for Ellevate?
I originally invested in the Ellevate network as a means to help women move ahead in their careers. Networking has been cited as the number one unwritten rule of success in business. And not networking can be an important reason that the gentlemen begin to advance ahead of the women at work in their 30s. So providing women this network – as well as a range of relevant business education for them, delivered in person and on-line – is a means of closing this gap. And the proof is in the pudding: the women of our community have a significantly lower attrition rate from the workforce than the averages. And because our events almost always include wine, we have fun while doing it!