Women have made significant progress in corporate board membership due to mounting shareholder and regulatory pressure. However, the progress towards gender parity in the C-suite has been far less impressive, according to Morningstar’s Executive Insight Data. At the end of 2022, 28% of Russell 3000 board members were women, up from 16% in 2017, and for the largest 100 companies, female board-member representation reached 33%, up from 24% in 2017.
However, women’s representation in the C-suite has been much slower to progress, with women comprising only 15% of all S&P 500 named executive officers in 2021, up from 9% in 2011. This growth rate of 6 percentage points over 10 years shows no sign of accelerating and is not expected to deliver gender parity until well into the second half of this century.
The lack of gender diversity in the C-suite has implications for investors, as research has shown that companies with greater female representation on boards and management teams tend to perform better in terms of stock price performance and value creation strategies. Despite some improvement in recent years, 43% of the largest companies in the US still have all-male NEO teams at the topmost layer of the corporate hierarchy.
Gender pay differentials in the C-suite have also remained persistent, with women earning $0.82 for every dollar earned by men in top corporate roles during fiscal 2021, according to NEO compensation data reported by companies in 2022. This gender pay disparity, coupled with the representation gap, has resulted in $18 billion more going into men’s pay packages than women’s in the most recent fiscal year for which full compensation data has been reported.
The study also shows that both men and women in the C-suite, especially CEOs, have enjoyed substantial pay growth, far outpacing workers’ earnings and the performance of the broader economy. This exacerbates the gender-based economic imbalance in society. In 2021, average S&P 500 CEO pay grew 21.5%, while workers’ real average hourly income fell.
Investors Suffer from Underrepresentation of Women in Corporate Leadership
C-suite gender gaps not only have real implications for societal inequality, but also challenge corporate commitments to create more equitable workplaces, as they indicate persistent obstacles to the advancement of women in the workplace. According to McKinsey’s annual Women in the Workplace survey, women face difficulty landing early-career promotions into higher-paying jobs, which the report calls the “broken rung,” as well as other headwinds in the workplace and outside, leading to their lower representation further up the corporate ladder. The survey finds that women are no less likely to aspire to more senior positions, but the “broken rung” makes it difficult for them to move up.
However, research suggests that women may bring a longer-term view to business leadership, which benefits investors and other stakeholders, as many of the most important challenges facing business are of a long-term nature. Morningstar research conducted in 2021 shows that U.K. companies with greater than 50% female representation on boards and management teams have stronger longer-term stock price performance and lower risk. By contrast, the stock performance of all-male board and management teams appeared to be the most volatile over a three-year period. Similarly, Harvard researchers tracked appointments and found that when women join the C-suite, they catalyze a shift in corporate thinking that may support new longer-term, internally cultivated value-creation strategies. For example, management teams become more likely to focus on R&D versus M&A and more open to change, yet less open to risk.
Building climate resilience into corporate strategy is a particularly pressing long-term challenge for businesses. PwC’s 2022 board member survey found that 66% of female directors agree with prioritizing climate action, even if it affects short-term financial performance, whereas 45% of male directors endorsed this position. Recent academic studies (Al-Najja & Salama, November 2022 and Altunbas et al, 2022) show that having more women in senior leadership roles translates into better corporate environmental performance.
Resolutions coming to vote over the past several proxy seasons, asking boards to set policies and targets on board diversity, have regularly earned majority shareholder support and spurred meaningful engagements. Investors have also supported mandating better reporting on diversity. While U.S. corporate C-suites have a long way to go to gender parity, investors have the power and good reason to accelerate this change.