In today’s business environment, we are seeing more and more the main differentiator of company performance is no longer access to technology, capital, or supply chains, but rather the quality of the people at the organization. Not only are CFOs paying more attention to human capital metrics and looking for new and better ways to measure the impact of talent on the bottom line, institutional investors are also taking a stronger interest in talent issues, and CEOs are proactively bringing up this information in earnings calls.
In CEB’s new Investor Talent Monitor (which CEB Corporate Leadership Council members can read in full here), we found that among the 900 largest companies in US equity markets, the percentage of organizations talking about talent on these calls increased from 55 percent to 70 percent from 2010 to 2016: Out of the 14 talent topics we examined, we found that culture and recruiting were the two most commonly discussed on earnings calls; diversity and inclusion was the ninth. And when CEOs are not proactive, investment analysts are bringing it up. A full 85 percent of the investors we surveyed indicated that talent information was critical when deciding when to buy and sell stocks.
The world’s third-largest investment management firm, State Street Global Advisors, captured a great deal of public attention on Wednesday when, for International Women’s Day, it installed a statue of a young girl staring down the famous bull of Wall Street in Lower Manhattan to highlight the lack of gender diversity on corporate boards and the gender pay gap in the financial services sector. But State Street, which manages nearly $2.5 trillion in assets, isn’t limiting its advocacy of gender equality to PR stunts; it intends to use its leverage as a major investor to push for greater gender diversity, particularly in leadership, at large companies, the Wall Street Journal reported on Tuesday:
The money manager, which is a unit of State Street Corp., says it will vote against board members charged with nominating new directors if they don’t soon make strides at adding women. Firms won’t have an exact quota to be in compliance with State Street’s mandate, but must prove they attempted to improve a lack of diversity. A firm that doesn’t add women, for example, would have to prove to State Street it attempted to cast a wider net and set diversity goals. …
“If someone could convince us that the absence of diversity or gender diversity is not a problem, we’re leaving that open. Will they? I doubt it,” said Ronald O’Hanley, chief executive of State Street Global Advisors.
Advocates of gender equality in corporate leadership tell the Washington Post’s Jena McGregor that they are very encouraged by State Street’s move:
“I feel like every other month a new study comes out that makes the case for gender diversity in corporate leadership,” said Brande Stellings, vice president of corporate board services for Catalyst, the nonprofit research firm. “But clearly the business case is not providing the motivation. To see important players like State Street say we’re going to be looking at this, and we’re going to be holding you accountable — I think that’s a significant development.”
Natasha Lamb, director of equity research and shareholder engagement for Arjuna Capital, said, “I’ve never seen an asset owner of this size step up on diversity like State Street has.” Lamb, who has pushed companies to report on their gender pay gap through shareholder proposals, said, “This is a remarkable evolution for Wall Street, which has been such a male-dominated field.”
As a massive investor, State Street’s size and influence mean that its decision to make gender diversity in leadership an investment priority is a major development in itself that will affect many organizations, pushing executives to revisit how they talk with public markets about the state of talent—and particularly diversity and inclusion—at their companies. It is also indicative, however, of a distinct and important trend within the investor community where we are seeing venture capitalists and institutional investors take strong stands on these issues and use their clout to push for change at the companies in which they invest.