You Can’t Break The Glass Ceiling Without A Promotion

Originally Published by Proxy Preview

In the finance industry, there is a mind-boggling 32 percent gap between women represented in entry level roles and women in the executive suite; women make up 56 percent of entry level positions and 24 percent of executives. Finance is not an anomaly. In transportation, logistics, and infrastructure, the gap is 43 percent, healthcare’s gap is 40 percent, and consumer packaged goods’ gap is 35 percent. There is no industry without a significant valley. We know that these valleys also exist around race, ethnicity, sexual orientation, and other immutable characteristics. We are still lacking sufficient public data to understand just how pervasive or extensive these gaps are.

According to McKinsey, a woman is 21 percent less likely to be offered her first promotion. This phenomenon, colloquially “the broken rung,” has persisted despite companies actively stating their commitments to gender equity (as 84 percent of the S&P 100 companies have done). Currently, published data is so limited that it is hard for investors to know who the corporate leaders are, who the corporate laggards are, and where a diversity commitment is nothing but PR. Only a small number of companies publish data on their workforce composition, and even fewer publish meaningful information on the promotion, recruitment, and retention rates of diverse employees.

This year, Nia Impact Capital and As You Sow, supported by Whistle Stop Capital, filed shareholder resolutions asking for more quantitative diversity data. We made this request knowing that companies with the strongest racial and ethnic diversity are 35 percent more likely to have financial returns above their industry medians. Companies in the top quartile for gender diversity are 21 percent more likely to outperform on profitability and 27 percent more likely to have superior value creation. Firms with management teams that were more than 20 percent female, over the course of a decade, showed share prices surpassing their less gender-diverse peers.

Research also that indicates that positive abnormal returns exist for momentum-based strategies associated with improving human capital management (implying that a poor initial showing has a potential upside). Of particular importance here, Stanford researchers found that announcements of gender diversity improvements catalyzed stock price jumps, yet flat or negative data did not harm shareholder value (implying that companies will not be penalized by investors for imperfect statistics).

Initial conversations with companies have been productive, tapping into strong internal allies eager to share more information on their initiatives and goals. We have worked alongside them to identify what information might be brought forward this year, making the case that a company that tells investors it is confident in its current programs and practices should also be confident that it will have improving diversity data to share.

Companies seem to understand, though, that what is currently a request for transparency will soon be an expectation. As an investor relations executive from a large financial services firm recently told us, “We’re getting almost as many questions on this as we are on climate change.”