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Male-dominated firms do worse than diverse rivals, Morgan Stanley finds

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
Carolyn McCall, chief executive of ITV, is one of the highest-profile female executives in Britain. Photo: Emmanuel Dunand/AFP/Getty

The stock price of more gender diverse companies tends to do better than male-dominated rivals, according to Morgan Stanley (MS).

The investment bank on Tuesday published a report on its “HERS score”, a new metric it has developed for measuring gender diversity at companies and its affect on performance.

The report concluded that “gender diverse firms tend to outperform their less diverse peers globally,” the bank wrote.

READ MORE: The stark reality of how global workplaces have a woman workforce problem

“Our analysis shows that globally, companies that have taken a holistic approach toward equal representation have outperformed their less diverse peers by 2.8% per annum over the past eight years,”

The analysis adds to a growing weight of evidence that gender diversity is good for business. A 2010 academic study found that having more women in groups improves the quality of decision making, while a separate McKinsey study found companies with greater diversity are more likely to outperform the market.

Other studies have found that having more women involved in decision making leads to greater innovation, a lower likelihood of going bust, and higher investment returns.

“The stocks of companies with a higher percent of women outperformed those that are less diverse,” Morgan Stanley told its clients.

READ MORE: Woman appointed to one of the last four FTSE 350 companies with all-male boards

Morgan Stanley analysed the share price performance of 1,875 companies on the MSCI World Index between 2010 and 2019. It ranked them based on a HERS score, which factors in the percentage of women on boards, the executive and management team, and in the workforce.

“All four metrics have shown positive efficacy historically, across different regions, with relatively low correlation to each other,” Morgan Stanley said.

Luxury group LVMH (MC.PA), which owns Louis Vuitton, scored highest in Morgan Stanley’s ranking of gender diverse European businesses, while Apple (AAPL) was the top in North America.

Other companies to score highly in Morgan Stanley’s HERS ranking include Facebook (FB), JP Morgan (JPM), Walmart (WMT), Visa (V), Diageo (DGE.L), Unilever (ULVR.L), and Santander (SAN.MC).

READ MORE: Britain has less than a third of females on boards — trailing behind France

The worse for gender diversity in Europe and North America include British Gas-owner Centrica (CNA.L), United Utilities (UU.L), Carlsberg (CARL-B.CO), Juniper Networks (JNPR), and Citrix Systems (CTXS).

More diverse companies tended to be “larger, have higher yield and skew toward a lower beta,” the bank said. Gender diverse companies outperformed “even after controlling for size, yield, profitability and risk.”

Despite the findings, diversity continues to be a major issue. Just 3.7% of the UK’s 350 biggest listed companies are led by a woman and three companies still have all-male boards. Women still make up just 29.8% of personnel on UK company boards in the FTSE 100. The last all-male board in the S&P 500 only added a woman in July of this year.

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Oscar Williams-Grut covers banking, fintech, and finance for Yahoo Finance UK. Follow him on Twitter at @OscarWGrut.

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