178. Increasing diversity and how it can change company culture

8 March 2022 (pre-recorded 28 February 2022)

Below is a transcript of the episode, modified for your reading pleasure. Please check the corresponding audio before quoting in print, as it may contain small errors. Please remember we’ve been discussing individual companies to bring investing to life for you. It’s not a recommendation to buy or sell. The fund may or may not still hold these companies at your time of listening. For more information on the people and ideas in the episode, see the links at the bottom of the post.

[INTRODUCTION] 

Staci West (SW): Welcome back to the Investing on the go podcast hosted by FundCalibre. In part two of our Women’s Day special we’re looking at the wider role of women, not just in finance but across industries. Research by McKinsey shows that companies with more women in executive leadership positions are more profitable. Yet only 41 of the CEOs on the Fortune 500 list and just 8 of the CEOs of FTSE 100 companies are women. This episode takes a closer look at board diversity, female CEOs and the role of asset management to further change. 

We’re joined by the same guests as part one: Alexandra Jackson, Deirdre Cooper, Kirsty Gibson, Sophia Li and Tessa Wong, hosted by FundCalibre’s Sam Slator. 

[INTERVIEW]

Sam Slator (SS): Deirdre, you mentioned earlier about Girls Who Invest, whose mission is to increase the percentage of the world’s capital that’s run by women to 30% by 2030. And there’s a similar drive in the UK to get 30-40% of women on boards. But is that actually happening? Maybe we can start with you Tessa and Sophia, for your views on Asia?

Tessa Wong (TW): If I start with China first, I guess China, definitely, there are many other things that they’re lagging behind when it comes to ESG, corporate governance. I won’t say that in terms of the gender diversity is very good. Definitely is also one of the feature that is lagging behind from a global standard. But I guess for China, there are so many other things that they are lagging behind obviously gender diversity is not a key topic in China. There are other low hanging fruits that can be more effectively and directly improving corporate governance, in my opinion, for example, audit committee independence, role of independent directors. I guess, for China, they will work on these areas first, rather than focusing on the gender diversity in the near future.

Sophia Li (SL): The female board representation in Japan is still very low. I mean, right now it’s about 12% and based on my thousands of meetings with Japanese companies, you barely come across any companies which have a female CEO. I do come across female CFOs, but not really a female CEO, unfortunately. 

But what I can think about is from an interview with a leading cosmetic company in Japan, which is Shiseido, because Shiseido’s CEO is the Chairman of 30 – Club 30 to promote 30% female executive ratio in Japan. And Shiseido is also a pioneer in Japan with more than 50% female manager ratio. And he [Masahiko Uotani] made a very interesting comment. He said that in order to change the culture of Shiseido, which is a really old, the oldest cosmetics company in Japan, is to have a higher female ratio and have a higher younger employee ratio. He made a personal comment. He said that actually Chinese females tend to be more, more outspoken and less political. And he feels that that really changed the culture of the company, but again, probably related to Japan, but not other countries, I’m not sure.

SS: Kirsty, Deirdre, what are you seeing with companies that you meet?

Kirsty Gibson (KG): I think the progress is not universal, but there are sort of pockets of success. So, companies that, many of them, so I invest purely in the US, I invest both across public and private markets as well. And I think that there is, I can definitely see a trend with the private businesses that we own that are looking to go public that are putting a lot of considered thought into the composition of their boards and to ensure diversity and to ensure that that diversity is of benefit to their business going forward. 

So we’re not just saying diversity for the sake of diversity, we’re talking about diversity because diverse minds are going to help them strategically in the future. But I think in terms of maybe the more younger, the younger companies, the newer companies that are looking to list, I think there is definitely progress there. So there’s definitely hope for the future, but I think it takes, you know, it takes a long time to change a dinosaur.

Deirdre Cooper (DC): No, I think that’s right. And I also think, you know, we absolutely support the 30% club, the initiative to have more diverse boards. But there has been some really interesting research that shows that companies that have more women on their boards do not necessarily have more women in senior management, don’t necessarily, you know, have a better gender pay gap. And some of that is sort of the behavioural biases that when we meet a goal, we kind of move on to the next thing. So sometimes companies that say, well, I’ve now I’ve got my 50/50 board. I don’t really need to think about gender as much as I did before. So I think it’s really important, not to underemphasise board diversity, but to see it in the context of a company’s culture and whether that company’s truly inclusive, and that’s really how we think about diversity more broadly. 

I mean I always think that diversity and inclusion is the wrong way around you don’t do the metrics first and then become inclusive. You develop an inclusive culture and the output of that will be diverse teams across every possible, you know, piece of the spectrum. But that’s the right way to think about it. 

SS: And Alexandra, what about closer to home in the UK market?

Alexandra Jackson (AJ): In the FTSE 350, we have made amazing progress at board level, you know, which is the only bit that is measured so far. So there are no all-male FTSE 350 boards left now, which is a big step forward. So I think two thirds of boards in the 350 have a third of their board positions held by women. That’s great. There is lots of over-boarding as you say, in the US as well, and there are also, I think, 16 companies that have one female board member, this is called the kind of ‘one and done’ and it could be it could be seen as a bit of tokenism. 

Only 5% of FTSE 350 CEOs are women. And as you say, Deirdre, there’s a huge disconnect between board diversity and then the kind of the way it trickles down or doesn’t trickle down into senior management. And maybe that’s the next, maybe that should be the next target.

SS: So how much do we then as an industry have to play in this role of getting change within the companies? Is it something that you’re actually engaging with, with companies, to try and encourage this and you know, sort of show why it’s of benefit for the company, or is it more that it’s a request from you to do something, but actually there are so many other considerations going on that it sort of ends up coming up a bit further down the list?

DC: I think it’s quite high on the agenda. I mean, if I was to think about both from our own perspective and also from the perspective of our clients, cause we’re obviously stewards of client money, the biggest and most important sustainability issues that they want us to engage on are climate change and diversity and inclusion. 

Diversity and inclusion are probably higher up the agenda in North America. So if you talk to, to North American, you know, large institutions, asset owners, that’s right at the top of their list, climate change probably higher on the agenda in Europe. And then in turn, you know, in us setting our engagement targets, we obviously engage on behalf of our clients. We also engage on topics we think will create value . So I think there’s two, there’s two reasons you engage. One is because you’re stewards of capital on behalf of your clients, and this is at the top of their agenda. And the other reason is to create value. And we would say that, you know, engaging on diversity hits both of those requirements.

AJ: Yeah. I like that piece about creating value. It’s sort of a, it’s one of those signposts, isn’t it? When you’re building an investment case as to why you would, you know, allocate your own clients’ capital into a business, it’s nice to kind of find those signs as to why this is a high quality durable, sustainable business, that you’d want to own for a long time and actually a representative diverse board that is genuinely kind of helping to affect change in culture is probably one of those great signs that there are other very high quality, well thought out policies and things going on in that company. So for us, we use that yeah, not just as something to engage on and voting, but like Deirdre, to ensure that the companies that we own are as robust as possible. 

KG: I think the challenge is that there are, it’s definitely the case that clients are more interested in these areas, but it sometimes can end up being in quite a sort of metric driven way that leads to some of these unfortunate outcomes of you know, one and done, or 50% on boards. And then you haven’t changed the culture of your firm itself. So it’s about, you know, metrics, the can be a starting point, but they’re not the end goal. It’s not about asking companies to fill in homework and say, if you tick these boxes, we think you’re great. Cause it that’s just, that’s just the beginning. It’s like, it’s like Alexandra says, it’s digging into this stuff in more detail and saying, well, what does that signal to me about this business? 

SS: And where there are female CEOs of companies, do you find that they do anything different to their male counterparts?

KG: I think what makes companies special is that there is no formula for what makes a good CEO or what makes a good leader of a business. And therefore that on the one hand, that’s an extremely positive thing for diversity, because it doesn’t mean you have to conform with a certain way of operating. You can be yourself. 

I think one thing that maybe historically has been more challenging is that, particularly when it comes to like running a startup, et cetera, a lot of that, a need at least to begin with is to do with confidence. And there’s a lot of evidence to suggest that women do lack confidence to go out and grab things in the same way that maybe a male counterpart would. And that therefore you do have this bias, particularly in spaces like Silicon Valley and the US, where there is a larger proportion of male founders starting up companies than you see than you see females.

SS: You alluded to earlier, Sophia, that with the bias that there is towards hiring fund managers, actually, when you are seeing the companies themselves, do you find that there’s also a natural bias where, say there’s more men in the room, that they would speak your male colleagues more than you or is there equality in the room now?

SL: As an investor actually, I don’t feel any sense of inequality there. Probably because Japanese management, they’re very polite. So actually they kind of address all the questions from me and also my you know, male colleagues. But on the other hand, I think because of the reasons that I talked about, which is very Japan-specific, it is very hard for the overall female especially manager or executive ratio to go up. But having said that if you look at the past five to seven years it has more than doubled albeit from a really low base. 

TW: I think in the China company’s context, I think this is even less likely. Sophia mentioned the female labour participation in China is very high, higher than UK, higher than France, most of the European countries. So it’s already quite normal to expect female participation in the employment environment in China. And of course it’s also the case in Hong Kong. So I don’t see any bias in that sense. In fact, if I look at some of the very inspiring leaders in some of the Chinese companies is very handy to name some of them, for example, Dong Mingzhu, you have Joey Wat, they are very inspiring leaders in the Chinese companies and they are women CEOs. So I don’t think that with such some inspiring leaders setting some of the role models I personally don’t see any bias when it comes to conversations with companies or meetings with a big conference of the industry people.

SS: That leads me very nicely to my final question, so perhaps if we could share some of the examples of high quality women CEOs that are out there and that manage the holdings in your portfolios? Sophia, I know you mentioned that you don’t really come across any female CEOs in Japan but perhaps for everyone else, could you highlight a company to wrap up with? 

TW: Another example I can give is the Yum China CEO Joey Wat, basically Yum China runs the operation of Pizza Hut and KFC in China. So she’s another very inspiring leader – only took up the leadership since 2018. But she was very active in a lot of media communication and also investor communication. We invited her in our own internal conference with our salespeople as well because she’s a very effective communicator. So I think that is also something that we appreciate when we assess China companies, whether they have the element to understand what investors need and how that will play into a part in running the business in China.

KG: The one I would mention is Alnylam pharmaceuticals in the US. So the CEO, there is a lady called Yvonne Greenstreet. And she actually has a medical degree from Leeds University. She qualified as a doctor there and she joined Alnylam in 2016 as their chief operating officer. And she became the new CEO in late 2021. So she is new to the role. But Alnylam makes basically does something called RNAi, which is RNA Interference. It’s like silencing of specific genes so they can turn them up and they can turn them down. It’s different to the mRNA that we’re all familiar with now with regard to COVID vaccines. But I think what’s potentially exciting for her at this juncture is that Alnylam is moving from a drug company, which has a few drugs in circulation to becoming a multi-drug company worldwide. And she is now taking over at that point when there’s a big opportunity to move this into becoming a really big business.

AJ: I own a company called Future PLC, which is FTSE 250 listed. And talk about a woman on a mission, the CEO there, Zillah [Byng-Thorne]. Wow. She is one of the most dynamic most ambitious, most highly high achieving women out there. She has lots of children as well, she runs this, you know, reasonably, you know, it’s quite a big business. She’s done a big acquisition last year of GoCompare, you know, a sort of money saving business. Essentially Future helps you with your hobbies. Zillah’s run teams all of, you know, all female teams. She had a female CFO, female COO for many years. The stock is one of the top performing shares in the FTSE 250. And I think a lot of that is testament to Zillah’s focus on the strategy that she has in place, which is incredibly clear in her mind. She focuses on adding value, sort of filling up her hopper, I guess, more and more each year, and then making sure that the cash is coming out of the bottom as well. That’s really important to the story.

DC: So maybe one that I really like is a Danish company called Novozymes. The CEO is Spanish interestingly, recently joined from a US company. So she has quite an interesting – recently in the last two years – set of experiences. It’s a really interesting company in that they’re the world leader in making enzymes and those enzymes go into all kinds of different things. They go into washing powders to allow you to run those at lower temperatures. They go into industrial processes, they go into all those plant-based meat products are all powered by enzymes in order to make them taste a little bit more like meat. 

I think she. you know, if you think of some of the other characteristics she clearly talks a lot about how she manages her life and her family with her job. And I think it’s probably cognisant of that across her teams that’s certainly come out of the conversations we’ve had, perhaps that’s, you know, part of Scandinavian culture as well. But she’s also just a great you know, really high quality CEO that’s focused on cost and growth and returns just like every, every other CEO or every other high quality CEO.

SW: A special thank you to our guests for taking part in this roundtable feature of the Investing on the go podcast. To learn more about any of the funds that these ladies manage visit fundcalibre.com where there’s even more information on women in finance and topics like the gender pay gap and financial inequality. 

Please remember, we’ve been discussing individual companies to bring investing to life for you. It’s not a recommendation to buy or sell. The fund may or may not still hold these companies at the time of listening. Elite Ratings are based on FundCalibre’s research methodology and are the opinion of FundCalibre’s research team only.