Transcript by Kensho.

Lindsey Hall: I'm Lindsey Hall, Head of Thought Leadership at S&P Global Sustainable1.

Esther Whieldon: And I'm Esther Whieldon, a Senior Writer on the Sustainable1 Thought Leadership team.

Lindsey Hall: Welcome to ESG Insider, a podcast hosted by S&P Global, where we explore environmental, social and governance issues that are shaping investor activity and company strategy.

We've been talking a lot on this podcast about environmental topics that "E" in ESG, and they run up to some big upcoming climate events. And with Climate Week NYC starting in just a few days, we'll be covering this topic a lot more in the coming episodes. Esther and I will be on the ground, bringing you interviews from throughout Climate Week, including a special series of episodes from the Nest Climate Campus. 

Esther Whieldon: But sustainability and ESG are about much more than climate. And on this podcast, we aim to bring our listeners a mix of environmental, social and governance coverage.

For example, earlier this year, we brought you several conversations with women's CEOs from around the world as part of our women and leadership series. And in today's episode, we're again turning our attention to gender diversity. This topic has been in the headlines as firms undertake strategies to increase the number of women in their top ranks. Policymakers in some parts of the world have even set quotas to encourage companies to appoint more women to corporate boards.

Lindsey Hall: In today's episode, we're exploring this landscape. And also what does the data show us about the path to gender parity?

Most studies I've ever read paint a pretty discouraging picture. And the United Nations just published a report on September 7, finding that women hold only 28.2% of management positions globally. 

Given the current slow pace of change, the report estimated that women's share of management positions will increase to just 30% by 2050. Before that, we have the World Economic Forum's annual global gender gap report. For 2023, WEFe estimated that gender parity will take more than 100 years at the current rate of progress. An analysis we did at S&P Global Sustainable1 earlier this year showed that only 4.4% of companies out of woman in the CEO role. 

Now our colleague, Jennifer Laidlaw, was a lead author on that research. She's a regular contributor to this podcast, and she was also an author on a new report that we're going to be talking about today. Now that report paints a somewhat more positive picture in an otherwise bleak landscape.

Jennifer, welcome back, what can you tell us about this newest research?

Jennifer Laidlaw: Well, in the research, we fund the women could reach parity in senior leadership positions in the 2030s — that's among companies in the Russell 3000 stock market index. The analysis looks at 86,000 executives from 7,300 U.S. firms over 12 years. 

Lindsey Hall: Now you wrote this report with Daniel Sandberg who conducted the data analysis for the research. Daniel is Head of Quantamental Research at S&P Global Market Intelligence and we invited him to come on the podcast and talk about the findings. Jennifer, what did you talk about with Daniel? 

Jennifer Laidlaw: I started by asking him why he had decided to focus on gender parity in the Russell 3000 Index as part of his analysis.

Daniel Sandberg: As for the reason for studying that universe with the Board of Directors and the C-suite positions are attractive to study because companies must disclose this information to regulators, at least in the U.S., but most other jurisdictions as well. 

So all that information is in the public domain. S&P Global has collected it, standardized it, enriched it with some additional metadata and we've got it all in a database going back decades. So it's a very attractive area to study.

Board of Directors and C-suite positions aren't a representative sample of the population, we aren't talking about the average gene, if you will. But again, attractive area, it's a study due to the availability of data. And I think it points to an emerging development and a bright spot amongst what maybe an otherwise bleak background according to some other work outside of our team.

Jennifer Laidlaw: How much of the sample that you looked at is mainly Board members or actually executives?

Daniel Sandberg: We looked at all positions. So we looked comprehensively across all the Board of Directors seats within the top 98% of market cap. The Russell 3000 Index is the top 98% of market cap, all the seats for Board of Directors and all the seats for C-suite positions. 

Consequently, there's quite a few more seats on the board than there are seats in the C suite. There's only one CEO per company, but there are multiple Board of Directors seats. I think if memory serves, it's roughly a 75/25 split Board of Directors to C-suite positions. 

We did isolate the C-suite. In that case, gender parity for just the C-suite position is still quite a ways off, mid-century at best. And the further out we go, the less reliable the forecast. For positions like CEO, where we're still seem to be hovering around the 5%, 6%, 7% representation of women, that position. I mean, we wouldn't even really have seen enough momentum to be able to generate a reliable forecast. We'd be, at current rates, we'd be hundreds of years off.

Jennifer Laidlaw: What methodology did you use to try and have that forward view of where women are going to be in the future?

Daniel Sandberg: We used an analysis where we count the pronouns within the biographies of those executives to assign the gender. We then looked at the representation of women, meaning the number that we assigned to the gender of women relative to the total number of executives, that's the representation rate, and we have those observations from 2010 to 2022. We then took the observed values, and we used standard linear algebra to fit the observed values to a pre-specified functional form. 

I'm getting a little bit into the net stuff here and usually see some eyes glaze over. So apologies to the listeners, if this is too technical. But suffice it to say, the representation of the trajectory of growth in the representation of women over the last 13 years, it's been exponential, meaning each year, there is more growth than the previous year. With the notable exception, by the way, of the COVID-19 lockdown, the representation did grow, but it grew at a slower rate than would have been expected. 

So with that exception, the growth has been exponential. If it continues to accelerate, if we can — if we make the assumption that it continues to grow at that exponential rate, then we'll have parity in those positions, meaning 50% men and 50% women by 2030. Now that's an aggressive assumption. We might want to make a more conservative assumption, a more conservative model in which we make the assumption in this case that as we start to see more and more growth as we get above, let's say, 1/3 representation of women in these positions, the growth starts to abate. It slows as we get closer and closer to the 50% line. And in that scenario, the model indicates parity in 2037. So we're sort of, again, under the assumptions of these models, we'd be range bound between 2030 and 2037.

Jennifer Laidlaw: So what is the short-term growth that abates as the women's representation rate reaches an inflection point. Could you just explain why that is?

Daniel Sandberg: Sure. So the assumption there is that as we start to observe more progress, some of the pro-diversity, pro-inclusion policies may see less emphasis. It would be very interesting and sort of — to be candid — unexpected to see the growth accelerate and continue to accelerate such that the largest step-up occurs right as we get to that 50% line. Because if that were to be the case and we were to project out even further, shortly after 2030, we'd be at 100% representation, which, of course, is possible — but again, it would be an aggressive assumption to say 100% of Board and C-suite positions are ultimately going to be filled by women.

Jennifer Laidlaw: And you were just mentioning that there was an exception during the COVID-19 pandemic. Obviously, that's something that was impossible to read when you're trying to model things. How well does reality actually follow the model? And has there been any other exceptions that you've seen while you've been doing this kind of work?

Daniel Sandberg: So one of the most interesting takeaways with this work has been the fact that if we look year-over-year, each year, we'd have — in 2010, we'd have the point available for up to 2010, shortly at the end — after the end of that year, we can make a forecast for 2011. Then after 2011, we can make a forecast for 2012. And so we can look at how far the next year's out forecast deviates from the reality. And we find that we're well within 0.5%, so meaning less than 0.5% error in estimation 1 year out. That sort of close agreement in my experience, it's a quantitative researcher is very uncommon to observe. 

And so with relatively high accuracy, we can forecast an expected growth in the representation of women within these positions. During 2020, we were expecting a 2.5% increase in the representation of women, and the actual growth was much lower, it's about 1.7%. With the model error being roughly 0.4%, we're almost double that model error indicating that it wasn't just noise that it wasn't — we weren't in to sort of the range of error that we were expecting. But in fact, we were seeing slowed growth, and there was likely some sort of factor impacting that. 2020, the first thing you think of is likely the covid pandemic had an impact on the growth rate in that year.

Jennifer Laidlaw: As Daniel mentioned, our research showed that the CEO position remains elusive for women. I wanted to find out more by that. So I speak to Cynthia Devers. She is the R. B. Pamplin Professor of Management in the Pamplin College of Business at Virginia Tech University. She has conducted a lot of research on gender diversity, and I asked her about her own findings on diversity and leadership. 

Cynthia Devers: We have seen some increase across all the different metrics about women in the upper echelon. So when I refer to upper echelon, we're including Boards of Directors and people in the C-suite at the top of those firms. 

And so we do see some increase in directors. So female directors have been on the increase. Although it's — I worry that it's going to camp out when it gets to about 30%. Some people are more optimistic than I am. But the problem is we haven't seen a lot of increase in the executive level. So if you look at the S&P 500, the statistics are a little better. If you go down to the S&P 1500, they're a little lower, about 8% of the CEOs are women. 

And so as you go and spread a wider net you see that, that number starts to shrink. One of the things that I've used in presentations over the — probably the last 5 years is that there have been more CEOs named John than there are women CEOs. No, we finally passed that mark, thankfully, but there aren't very men named Jon=hn relative to the amount of women in the world, which is about 50%. So I think it's troubling to me that we're not seeing the increase in the executive level that we're seeing in the Board level, which means that our people are going to be there in a pipeline to move into those board positions.

Jennifer Laidlaw: Right. Why do you think that is that difficulty in sort of getting past that barrier and having more women involved in the executive level? 

Cynthia Devers: Right. I mean we talk about like if you look at the women who have graduated at least in U.S. universities, it's over 50%. With a bachelor degree it gets higher as you go into the master's level as well, but we have a very small percentage of those people who make it to the executive level. 

For every 100 men who are promoted at the very first level, there was about 86 or 87, women promoted. A lot of people think there's not discrimination, gender discrimination, particularly is what I research. However, there is — there is a stereotypical belief that people have about men and women, and they pretty much undergird everything that — how we process information. 

So we're socialized to think that men are the agentic assertive go-getter type of person and women are the communal nurture compassionate person and those stereotypes persist here in the United States and across the world in most cultures. The problem with leadership then is if we look at the prototype in people's minds of a leader, that is agentic, assertive, the go-getter type. And so it matches perfectly with what people think about stereo typically about men and their expectations of how they should act in the world. It violates what people think about women because if you're assertive or if you're restive on the job, that violates the nurturing passionate role that people see women playing the more communal role versus the more agentic rule of a man. 

And so it can end up in penalties and backlash for women. And so — and women are pretty aware of this, and it's difficult because they have to try to walk both sides of that fence. So for a woman leader, I've interviewed lots of women leaders and women executives. And one to be a story that was really fitting. She said, "You know what, I'm the one that has to fire people and I'm the one who has to bring the birthday cakes." And so you have to play both of those roles. And I think the people that are able to do that are able to advance and the people that aren't quite able to do that or don't have the ability to do that kind of struggle.

Jennifer Laidlaw: Firms need to encourage more networking for women to help them reach the top job, Cynthia told me.

Cynthia Devers: When a nominating committee gets together because they have to replace a Board member or they want to add another Board member, they start to brainstorm about people that they know. And it's a natural thing to do. And so men have bigger networks or wider networks and they're connected to more people. They're the first people on those people's minds. And so they're the first person that gets recommended. 

And it is harder than to go out and find people then to actively search for people. And so that's something that the firm really wants to make a commitment to diversity, equity and inclusion. They have to do that, but everybody is busy. And so they tend to often satisfy and take the first person who is acceptable that comes along the line, and that's often not a woman. 

But firms can do things to help and they can do things to help women build bigger and wider networks as well. And some of that is just introducing people to other people. Like there's a lot less women as we know, in the executive suite. You're not going to have the opportunity to bump into those people on a regular basis, whether you're in a Board meeting or whether you're an executive meeting. And so firms need to create ways where they can help women network with other women and other men. 

It's really important to have a men's champion this as well. One of the things that I hear from women executives is when they become an executive and they want to hire other women, people say, "Well, you're destined this woman because you're a woman." So we need meant to also champion this as well to make sure that we're considering a wider set of individuals, not just those who come to mind in a convenience sample.

Jennifer Laidlaw: You heard Cynthia talking about bias in the hiring of CEOs. Daniel mentioned that to me as well. Here he is again speaking about the findings of a research report he offered on how women's CEOs or CFOs can boost corporate profits. And he'll explain how he came across bias in his research.

Daniel Sandberg: We used a same firm model to study the impact of female leadership. So specifically, what we did is we looked for instances where a CEO or a CFO had been replaced at the firm without considering gender. And then we bifurcated all of those "new appointments" into those that were male versus female. And so what this allowed us to do was baseline the firm's performance after the new appointment to the firm's performance prior to the appointment. 

What we found in that work was that firms that appointed a female CFO ended up generating more profit over the entire study period. That profit totaled $1.8 trillion. That's gross profit over a 16-year horizon. We also found that firms that made a CFO appointment that was female saw a 6% increase in profitability, 8% improvement on stock returns. And then if the appointment to a CEO position was female, we saw a 20% improvement in the, what we call stock price momentum, or the trend in stock price. 

And then what I really liked about this particular piece was in the last part of the work, we made an attempt to see if we could understand why there was a difference. Presumably, a talented executive has an impact on the firm that's wholly separate from gender, at least that was our prior. 

And so what we did was we looked at the biographies of these executives, and we used a form of machine learning called natural language processing, or NLP. And so we pointed that at the biographies of these executives. And what we found was that the characteristics that define success, we use stock price to dictate success, the language that dictated success for men was the same language that dictated success for women. But that language, that successful language in the biographies was more prevalent in the biographies of the female executives. 

So the way we interpreted that result was that talent is equally distributed across gender. But because there's a bias to hire a man over a woman, the contingent of mail executive talent is relatively overfished. Essentially, Boards have passed over a more qualified women on the basis of our analysis around the language and biography, has passed over a more qualified women in favor of a less qualified man to stick with the convention of the Chief Executive and the Chief Financial Officer being male.

Jennifer Laidlaw: In your research, did you get any idea of why that was?

Daniel Sandberg: We try to stick to what we can show with data. And the Board of Directors makes the appointments in almost in every case, I'm aware of, we don't have any data on the intention. I'd certainly think that most Board members strive to make the most judicious and appropriate appointment. However, the fact that we see such a disparity at the time of this paper, I think it was just over 5% female representation in the position of CEO. And if memory serves, CFO was close to 15%. 

So the fact that there's such a disparity in the representation to me indicates that there's a bias towards hiring a male and by extension, when faced with the choice between a highly qualified female and maybe a mediocre or mid-tier male that there may be a tendency to go with the male candidate because it's the norm. But again, that's one interpretation of the data before us. We couldn't definitively say what the cause really is from the data.

Jennifer Laidlaw: I asked Cynthia if she had come across examples of highly qualified women being passed over for less qualified men in her research.

Cynthia Devers: It's hard for me to get that data. I mean if you just look at it, you can see that there's a systemic bias. There's 50% or higher of women who graduate with a bachelor's degrade, but we have 8% of women are CEOs in the S&P 500. And the pipeline is even smaller as you move down into the executive suite and so even down to lower levels of the executive suite. 

So I don't have first-hand instances where I can say, well, that was a biased decision. But if we look at the numbers, something's going on here, it doesn't seem to equate to the amount of women in the workforce versus the very few number of women we have at the top levels of the firm, including the Board. 

It's a little bit better at the Board, right? We're close to 20% or 30%, depending on what what index you're going to look at. But it's very few in the CEO level or the CFO level or the C-suite. And many of the women who are promoted into the C-suite end up in support roles, more whether it's an HR or legal versus something that's going to promote the marketing, for example, as a Chief Marketing Officer or a CFO that is going to give them the foundation that perhaps another firm would like to put someone on their board. Well, they want someone that brings to their firm, the things that they need in terms of experience, in terms of whatever other metrics they are looking for. And if you don't have that experience, it's hard to make the case to bring that person on to your Board.

Jennifer Laidlaw: And when a women is actually a CEO? What kind of biases have you seen towards women?

Cynthia Devers: They're more likely to get playered — it takes some 2.5x longer to get another position. And they're more likely to be attacked by activist investors. Firms run by women, are more likely to be attacked by activist investors. 

And they're treated very differently in the media. You can see this both in empirical data, but also in anecdotal data. I mean it's very rare that you'll ever hear someone interviewing a male CEO, how they make sure they get their kids to soccer and still do their jobs, right? Women are asked those kinds of questions all the time. So it's very different in people's minds to be a mother and be a CEO than it is to be a father and CEO because the father part doesn't really enter into people's perceptions of the person, but the motherhood park does. And so then that colors their view because it's hard for people to reconcile well we have this nurturing mother here, who is also going out and laying off people or having to fire people or having to make tough decisions or buying another firm. And so it's very hard for in people's minds to reconcile those things. So they're easier target.

Jennifer Laidlaw: Cynthia then went on to explain some of the financial challenges facing women's CEOs.

Cynthia Devers: For quite a while, women were paid less than men. And by and large, that occurs across the board, right? At the highest levels, now we're seeing that it's fairly equal, both in terms of long-term incentive pay and salary and bonuses. So it's fairly even in like the S&P 500, for example, of women and men. 

But where we see the difference is I have a paper that we published on severance pay. And so women negotiate much higher severance packages upon appointment than do men — and so what that suggests to us is that women think that this is a much more risky move to become a CEO based on the things that we just talked about, right? They're more likely to be terminated, they're more likely to be attacked by activist investors and so on. So they want to protect themselves and the fact that it takes them quite a bit longer to find another job once they are terminated, they want to make sure that they protect themselves. So the one way that we're able to show that they think this is pretty risky to take this job because of all the biases and things that we've talked about is they negotiate higher severance, which makes perfect sense. 

Jennifer Laidlaw: When do you think we might see a substantial increase in the number of women CEOs?

Cynthia Devers: In the '80s, there was some initial research in management that looked at women board members and women executives. And they found that there was some slight progress on women board members, but there was very little progress, if any, at the executive level. And we're still in that same situation. 

So the only way that I see of us getting out of that situation and trying to get closer to parity is by firms really making a commitment to it. And by shareholders voicing their opinions about it. Part of the problem is a focus and, particularly in the U.S., which I do most of my research in U.S. farms is the short-term performance focus. And so it's the mentality of what it done for me lately as a shareholder, a diversity might be — maybe it important to them, but performance is much more important in general to investors, and so that's what they want. And so they're not going to voice their opinions if they're getting what they want in performance. 

When an investor who values gender diversity buys into a firm, we do see an increase in the number of women executives hired. But if the firm is performing above their peers, then that goes away. So that effect is gone. So we only see that for lower performing firms. So it's almost like a compensation type of mechanism where it's like, "Well, I'm not giving performance, at least I'll give them diversity." No, I don't know. I haven't talked to executives — I don't think anyone is going to tell me that's what they say, but the data seems to bear that out.

Lindsey Hall: So a lot to unpack in the research that we've learned about today. And it's encouraging to hear that some of the data paints a sort of positive picture about the outlook for women's leadership positions. But it sounds like overall, it's still going to be an uphill struggle to get more women in the CEO role.

Esther Whieldon: Yes. C-suite parity is not projected to be reached until closer to the middle of the century, at best. But companies can make proactive efforts now to bolster and invest in the development and growth of women leaders at an earlier stage in their career.

Jennifer Laidlaw: Yes, and it sounds like from what Daniel and Cynthia were saying that it might just need a whole change in mindset and people's perceptions.

Esther Whieldon: Well on this podcast, we'll continue to track developments in the pursuit of diversity, both gender and other types of diversity. And Jennifer, we look forward to hearing more from you on your research on this topic.

Jennifer Laidlaw: Well I hope to be back soon.

Lindsey Hall: Thanks so much for listening to this episode of ESG Insider, and a special thanks to our producer, Kyle Cangialosi. Please be sure to subscribe to our podcast and sign up for our weekly newsletter, ESG Insider. See you next time.

This piece was published by S&P Global Sustainable1, a part of S&P Global.     

Copyright ©2023 by S&P Global  

DISCLAIMER  

By accessing this Podcast, I acknowledge that S&P GLOBAL makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in this Podcast. The information, opinions, and recommendations presented in this Podcast are for general information only and any reliance on the information provided in this Podcast is done at your own risk. This Podcast should not be considered professional advice. Unless specifically stated otherwise, S&P GLOBAL does not endorse, approve, recommend, or certify any information, product, process, service, or organization presented or mentioned in this Podcast, and information from this Podcast should not be referenced in any way to imply such approval or endorsement. The third party materials or content of any third party site referenced in this Podcast do not necessarily reflect the opinions, standards or policies of S&P GLOBAL. S&P GLOBAL assumes no responsibility or liability for the accuracy or completeness of the content contained in third party materials or on third party sites referenced in this Podcast or the compliance with applicable laws of such materials and/or links referenced herein. Moreover, S&P GLOBAL makes no warranty that this Podcast, or the server that makes it available, is free of viruses, worms, or other elements or codes that manifest contaminating or destructive properties.  

S&P GLOBAL EXPRESSLY DISCLAIMS ANY AND ALL LIABILITY OR RESPONSIBILITY FOR ANY DIRECT, INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL OR OTHER DAMAGES ARISING OUT OF ANY INDIVIDUAL'S USE OF, REFERENCE TO, RELIANCE ON, OR INABILITY TO USE, THIS PODCAST OR THE INFORMATION PRESENTED IN THIS PODCAST.