Holly Black: Welcome to Morningstar. I'm Holly Black. With me is Dan Lefkovitz. He is a strategist in the Index team at Morningstar Chicago. Hello.
Dan Lefkovitz: Good to be with you. Hi.
Black: So, it was International Women's Day this week. So, I've got that on the brain, gender equality, and you're in the index team and you actually have a way to index gender, which is really interesting. But let's go back a little bit before I get into that and that is, why is gender diversity and equality such a big topic at the moment.
Lefkovitz: Sure. Well, we know that women are underrepresented in the workforce globally, especially at leadership levels. That's a long-running issue. There's a gender wage gap that persists. And unfortunately, these inequities have been exacerbated by the pandemic. Societal lockdowns, travel restrictions, the economic downturn, all these things have taken a disproportionate toll on industries with heavy female participation. So, things like hospitality and services, travel and leisure. A lot of women have dropped out of the workforce to care for family, to oversee remote schooling. So, millions of women around the world have had their career trajectories derailed.
Black: So, why does that matter to investors though?
Lefkovitz: Sure. Well, first, it's a matter of equity and justice and basic fairness. But second of all, there's really a growing body of research that links diversity, equity and inclusion to corporate performance. So, companies that embrace diversity, foster cognitive diversity, so bringing people of different backgrounds to the table improves decision-making and they tap into the full potential of the workforce.
Black: So, Morningstar has these gender indexes that aim to tap into these specific trends and screen for companies that are good at gender equality. One of them is called the Women's Empowerment Index, which I absolutely love. So, do you want to tell us what they do?
Lefkovitz: Sure. So, we've partnered with a specialist researcher called Equileap that focuses exclusively on assessing gender equality within the corporate sector. They've evaluated roughly 3,500 companies around the world using a really robust methodology, 19 different criteria. So, they look at representation, gender balance at various levels. So, they look at the Board of Directors and executive level, management ranks and then the workforce overall. They look at the size of the company's gender wage gap. But they also look at things like policies and programs that encourage gender equality, things like parental leaves. So, they look beyond the numbers. And then, they also examine a company's track record. So, do they have a legal history when it comes to gender discrimination and sexual harassment? So, some companies can say the right things and pay lip service and have the right policies, but their actual behavior tells a different story. So, they're looking at both words and deeds. So, we take Equileap's company-level research and we turn it into gender diversity indexes that emphasize companies that have good scores when it comes to gender equality and deemphasizes companies that don't and we exclude altogether companies that are embroiled in various legal issues related to gender.
Black: So, that leaves us with about 200 companies if my information is correct. Do you want to talk us through a couple of those that have made it onto the index?
Lefkovitz: So, at the sector level, the consumer defensive sector and healthcare are two sectors that really stand out for their commitment to gender equality. On the flip side, industrials and basic materials are sectors that have room for improvement when it comes to representation as well as their policies. At the country level, interestingly, Australia scores very well. Equileap attributes that to 2012 legislation that requires companies in Australia to report on gender. And it turns out that transparency actually leads to better practices. What you can measure you can also manage. And then, on the room for improvement side, Japan is a country that has more work to do when it comes to promoting gender representation, especially within the business world.
A few companies that stand out – so, Diageo is a company, a British beverage company, owner of the Guinness brand, that has a great gender balance at all levels of its workforce. It has no gender wage gap. It has strong parental leave policies. Within the healthcare space, Eli Lilly, U.S. pharmaceutical company, is a real standout when it comes to gender representation as well as policies. They also do a good job of promoting gender equality within their supply chain. And then Westpac, the Australian bank, is one of several Australian companies that we emphasize in our indexes because it has a strong track record when it comes to gender.
Black: Fantastic. Dan, thank you so much for your time. For Morningstar, I'm Holly Black.
