By Carolyn Eagle, senior product manager, Sustainable Investments
Gender diversity in leadership roles has emerged as an important global theme in recent years. Addressing gender equality has become a key focus of the UN Sustainable Development Goals, and more governments are putting regulations in place to promote gender diversity in publicly listed companies. NASDAQ also recently took a major step in advocating for the cause, proposing that the more than 3,000 companies listed on its exchange be required to appoint at least one woman to their boards.
When we first launched our FTSE Women on Boards Leadership Index Series three years ago, board gender diversity had already risen to prominence on government and corporate agendas, but women remained largely underrepresented on corporate boards. And while more recent data indicates corporate boards are still falling short of achieving widespread gender balance, it points to significant progress over the past several years—and much of this has been driven by some of the largest global companies.
Progress across the board
Progress toward equal gender representation on corporate boards has been particularly noteworthy in the UK. Using the FTSE 350 Index constituent companies as a metric for UK progress, a recent Hampton-Alexander Review report found that 34.3% of board positions are now held by women.1 This is a 50% increase from just five years ago, when women represented only 21.9% of FTSE 350 company board positions.
While still lagging the UK, the US has also made significant strides toward board gender parity in recent years. As shown below, the percentage of women on Russell 3000 Index constituent company boards has risen steadily over the past few years, climbing from 16.0% in 2017 to 22.6% in 2020.
Bigger companies leading by example
The FTSE 350 Index and Russell 3000 Index are both relatively broad representations of their respective domestic equity markets. If we narrow our focus to the 100 largest names in each of these indexes, we can see that size is a key characteristic of the companies driving progress toward gender balance on boards.
As shown below, the 100 largest companies by market capitalization in each of these indexes reported higher percentages of women on boards than their broader counterparts. And if we look at the smaller market cap segments of UK and US equity markets, relatively fewer women were represented on company boards.
Change from the top means convergent index performance
Our FTSE Russell Women on Boards Leadership Index Series methodology aims to identify companies that demonstrate leadership in gender diversity. We adjust constituent weights based on both a Women on Boards ratio2 and a Social Pillar Score—a metric that encompasses a wide range of social issues, including diversity and inclusion indicators.
If we look at the top weighted holdings in these indexes, we can see how the largest companies are primarily the ones performing the best based on our women on boards criteria. As shown below, the FTSE All-Share Women on Boards Leadership Index shares eight of its top 10 holdings with the FTSE All-Share Index, and the Russell 1000 Women on Boards Leadership Index has five overlapping top holdings with the Russell 1000.
These similarities in index composition are driving convergent performance between FTSE Women on Boards Leadership Indexes and their broader index counterparts. As shown, a performance comparison between these two indexes and their respective parent indexes reveals similar returns, particularly over more recent time periods.
Driving behavior change
While recent progress toward gender equality on boards is promising, both the UK and the US still fall short of equal board representation. As long as these imbalances persist, it’s clear there’s more work to be done. Some might find it encouraging that it’s primarily the larger public companies that have made the most progress. One could argue that large companies face greater scrutiny by investors and other stakeholders, but they also tend to have more resources to formalize and communicate policies and practices such as ones around gender diversity at leadership levels. One might hope that the success of those policies can drive the behavior of companies of all sizes.
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2. Women on Boards Ratio = ratio of female board members to total number of board members.
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