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Dec 19, 2018

Gender diversity: An economic and strategic imperative

Reporting on pay gaps has so far proved a cathartic exercise

Business culture is undergoing transformational change to harness the full potential of women in the workplace. This is being driven by legislation, such as gender pay gap reporting, and by the power of investor capital. 

The economic case for full participation of women in the labor market is strong. McKinsey research in 2016 estimates that if parity is achieved, there is the potential to add $28 tn to annual GDP by the end of 2025: a 26 percent increase. To achieve this, there are many ingrained societal practices, legal constructs and status quos that must be overcome. 

The UN identifies seven drivers for women’s economic empowerment, one of which is changing business culture and practices. For sustainable change in business culture and practices, the benefits of addressing gender imbalance within organizations must be viewed as a way to optimize effectiveness and create a more inclusive environment. 

Gender imbalance manifests in organizations most visibly through the gender pay gap, which we consider to be economically inefficient because where abilities and effort are systematically under-rewarded, resources tend not to be distributed and used optimally. Solving the gender pay gap will be transformational for corporate cultures. In the UK, the first year of annual disclosures has proved cathartic and uncomfortable reading for all. 

Disclosure and transparency are proving to be real catalysts for change. The reporting has provided a way for companies, management teams, boards of directors and employees to coalesce around the issue; with the annual disclosure process, employees can hold their employers to account and investors can hold companies to account on a regular basis. In this regard, the importance of long-term initiatives, such as gender pay gap disclosures, will prove vital as the insights gained will indicate which companies need to adapt accordingly to prosper in the future.

The power of investor capital is also proving transformational. The 30% Club is a global market initiative to address gender imbalance and its UK Investor Group now has 32 global investment institutions with, collectively, £11 tn ($14 tn) of assets under management, engaging with UK companies on diversity. Laggard companies are challenged on gender imbalances and leader companies are applauded for their efforts. 

Diversity features regularly in our engagements with companies and the Investor Group is engaging collectively at a sector level. Company leaders are approaching investors to explain how they are addressing gender imbalance in the workplace, to make full use of female talent.  

This is very important because CEO commitment is one of three game changers on this issue. Signaling – both internally and externally – from CEOs is vital. The 30% Club now has chief executives from 64 FTSE 350 companies publicly committed to achieving 30 percent women in their senior management team and 44 FTSE 350 chairs publicly committed to achieving 30 percent women on their board by the end of 2020.

Diversity is emerging as an economic and strategic imperative. Addressing gender imbalances will change corporate cultures with major social and economic effects. Through legislative forces and the power of investor capital, change is being accelerated. A more equal future, and sustainable corporate cultures that work for all, may become a reality sooner than we think.  

Deborah Gilshan is an investment director in the ESG team at Aberdeen Standard Investments, co-chair of the 30% Club UK Investor Group and founder of The 100% Club

A version of this article was published in the winter 2018 issue of IR Magazine – the 30th anniversary issue of IR Magazine