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In a world of finance and big business that's dominated by men, a new American investment fund is betting on women. And its founder is hoping to send a strong message to Wall Street and beyond.
Our economics correspondent, Paul Solman, has the story. It's part of his ongoing reporting Making Sense of financial news.
Stocks all around the world tanking because of the crisis on Wall Street.
One of the biggest financial failures in U.S. history.
A near total collapse of the financial system.
One of the major causes of the crash of '08, says the chief financial officer of Citigroup, the general insularity of Wall Street's old boys network.
SALLIE KRAWCHECK, Chair, Ellevate Network:
They were people who had grown up together, gone to the same schools, looked at the same data over years and years, and came to wrong conclusions.
The same wrong conclusions, says Sallie Krawcheck, one of the rare females to scale the heights of high finance.
As Krawcheck sees it, a key problem was group think, with few to no females, for instance, to offer alternative points of view.
Diverse teams I have seen may not make quicker decisions, but they tend to make more effective decisions. They're not all looking at the same thing in the same way.
People have said, if Lehman Brothers were Lehman Sisters, it wouldn't have happened. I wouldn't go that far. I would say, if it were Lehman siblings, we would have had more of a fighting chance.
And whether you buy that or not, even six years after the crash, women hold less than 15 percent of executive positions at Fortune 500 companies and under 17 percent of corporate board seats, though almost half of all advanced business degrees now go to females.
If it were just about intelligence or effort, we would have much more diverse teams. It can often be that we have these subtleties. Who bragged the most eloquently, right? Who presented themselves the best? Who made the best case?
And sometimes those are people who have the best results and sometimes they're not. My experience has been that the gentlemen are more likely to come and ask for the promotion and that the women are less likely to do so.
Krawcheck left banking three years ago, determined to push more women into management. She's now started a stock mutual fund which invests only in companies that promote women.
Here is a market-based, capitalist solution to driving investor capital to those companies.
The fund is a joint venture with Pax World, a New Hampshire firm which manages socially responsible funds.
To CEO Joe Keefe, a fund that promotes women is a way for investors both to back a cause they care about and to profit.
JOE KEEFE, President and CEO, Pax World: They want a fair return, but they also want to have a positive impact. They want their money aligned with their values.
Sallie Krawcheck's women's fund invests in the world's 400 most female-focused firms.
We look at every one, and we see, how many women are on the board, how many women are in management, do they have women at leadership posts like CEO or chief financial officer? They're companies that will make a commitment to women playing a significant role in leadership. And we think that is going to bear out well for them over time.
Who's number one?
The top 10 include Microsoft, Nestle, Xerox, Procter & Gamble, Lockheed Martin. It's big blue-chip global companies.
Companies with a way-better-than-average rate of women at or near the top. Take Xerox. More than a quarter of its senior managers are female. Women comprise 40 percent of its board and nine of its most senior executives are women, including the last CEO and the current one, Ursula Burns, who thinks the value of gender diversity is perfectly obvious.
URSULA BURNS, Chairman and CEO, Xerox Corporation: We have 6.5, 7 billion people in the world. Half of them are women. Actively including them helps us solve problems better.
Since a woman took the helm in 2001, Xerox has aggressively diversified into services. Its stock has surprised investors, up by 33 percent in the past year alone, despite the dire challenges still posed by digital imaging, as opposed to Xeroxing.
The success should come as no surprise, says Brande Stellings. Her nonprofit, which tracks the results of women in business, finds that firms like Xerox with more of them tend to prosper.
BRANDE STELLINGS, Catalyst:
There is a correlation between having gender-diverse leadership teams and better corporate performance outcomes.
And so, says Krawcheck, data drives her fund.
Whether it's higher returns on equity, whether it's greater innovation, whether it is greater client focus, greater long-term focus, and, in fact, even lower gender pay disparities within the companies.
But innovation? I have seen research, controversial, to be sure, but research that shows that men are greater risk takers.
Well, men take more risks. There's actually research that shows that women are better investors, that they're more risk-aware. And so what you actually see amongst venture capital start-ups is, you will see that the women-owned companies perform better, more singles and doubles, whereas the guys typically will either hit a home run, you know, or are more likely to flame out.
So, to Krawcheck, investing in her socially responsible women's fund is economically savvy.
MEIR STATMAN, Santa Clara University:
I don't think that it makes a lot of sense to invest in socially responsible funds in the hope of getting X for returns.
Finance Professor Meir Statman is a skeptic of any targeted fund, no matter how much he made personally believe in its premise or purpose.
A custom-made portfolio, just like a custom-made suit, is more expensive. My sense is that the likelihood that I would benefit from it after taking into account expense ratios is very small.
Now, Meir's research has found that do-good firms provide higher returns for do-good funds. Unfortunately:
They are offset by the fact that socially responsible funds also tend to exclude tobacco companies and weapons companies and environmental violators. That exclusion hurts their returns. And so, in this sense, those two effects cancel out.
Though Krawcheck's fund does invest in defense firm Lockheed Martin, it excludes most so-called sin stocks, at a cost, says Professor Statman, though he doesn't disapprove of the female-focused fund.
People who want to buy that fund are people who feel passionately about promoting women in roles of leadership, in roles of executives. And if they get returns that are about the same or even somewhat lower then they can get elsewhere, well, they consider it worthwhile.
Krawcheck thinks lots of investors will.
Ninety percent of women want to have a social impact. Something like 77 percent of women globally have reported they want to get behind companies with greater gender diversity.
People are saying, gee, just like I want to work at a company where I both make money, but also makes a difference in the world — and you see this with younger investors, the TOMS, the Warby Parkers, I also want my dollars to make a difference.
Is it fair to characterize your fund as the fund that doesn't invest in the good old boys' network companies?
If you would like to, you could characterize it that way, although I want to be very, very clear — and I really hope this makes the cut — that I really, really like white middle-aged males. I want to make that perfectly clear. I am married to one.
I'm tremendously relieved to hear it.
I know a lot of them. I promise you, this is not an anti-guy thing. This is a pro-all-of-us thing.
I did have one last question, though.
If you're truly successful, and all the major companies of the world adopt the practices you're promoting, then your set of funds will be out of business, right?
That would be a good problem to have.
So, why are there still fewer women at the top of American business? You can hear from Sallie Krawcheck about why she thinks women keep their heads down, plus how she climbed the ranks as a new mom. That's on our Making Sense page.
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