Gender Diversity Can Add Value and Reduce Risk: Baxter International vs. ExxonMobil

HIP Investor  |

This is Part Two of our series on the value of forward thinking, impact investing. You can find Part One here.

 

The Tangible Benefits of Board Room Diversity 

A main factor driving the difference between Exxon Mobil Corporation (XOM) and Baxter International Inc. (BAX) turns out to be related to labor outcomes in board, management, and employees. According to the most recent available self-reported data by each company, Exxon trails Baxter in gender diversity on its board of directors as well as management. Exxon is improving, as seen by the addition of a second female board member in 2012. In executive management, however, Exxon has 9% of females in executive positions, while Baxter has 25%. Looking more deeply in management diversity from executive through middle management, Baxter reports almost equal diversity of females and males, whereas Exxon Mobil declines to report data to this deeper level. Neither company is diverse enough in board or management to make the cut for another social-factor investment index, Pax Ellevate Global Women’s Index, backed by Sallie Krawcheck.

A leading advocate for diversity of all types, Krawcheck said “If you and I are the only people we know in the world, we will have a pretty limited set of information.” James Surowiecki’s “wisdom of crowds” phenomenon explains the value of diversity, too. If a larger set of diverse information aids in business success, Exxon Mobil lags Baxter by having lower gender equality in employees. Baxter reports almost equal diversity of females to males employed, where Exxon Mobil reports about 26% female employment.

The data is expressed in terms of “women on the board” or “women in management” but it is more than a social issue of women’s rights. The gender-equity factor is relevant because -- as studies from Credit Suisse, Harvard, Reuters, and about a dozen others have shown -- companies with more gender equality in leadership show outperformance in return on equity, share price, and net profit margin, all with reduced volatility.

Women in Management: A Social Issue That's Also Good Business

A Credit Suisse Group AG (CS) study examined more than 2000 public companies globally, and demonstrated that return on equity from 2005 to 2011 among companies with at least one woman on the board average 16% return on equity, while firms with zero women on the board averaged 12% return on equity, a 33% premium. In addition, the volatility of ROE was higher for companies with all-male boards. (There are no public companies with all female boards.)

 

Check Equities.com next week for Part Three in our series on impact investing!


 

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
BAX Baxter International Inc. 70.30 -0.33 -0.47 1,021,724 Trade
XOM Exxon Mobil Corporation 71.72 -1.27 -1.74 3,971,795 Trade

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