The headlines shout recognition of the power of diversity in the boardroom and C-suite – “Nasdaq Pushes for Diversity in the Boardroom” (Dec. 1, 2020), “Goldman Sachs Announces Commitment to Board Diversity” (Feb. 4, 2020), “New Law Requires Diversity on Boards of California-Based Companies” (S). The banking industry has lately joined the chorus. As an example, in February the American Bankers Association (ABA) issued Women in the Boardroom, a white paper developed in collaboration with Bank on Women, an organization whose mission is to educate the community banking industry on the importance of adding qualified women to the board and C-suite positions.
If equal opportunity in the boardroom is not your personal mission, you do have a fiduciary obligation to pay close attention to the economic benefits to your institution. We all like to make money, and the ABA’s white paper tells the tale in statistics. As of the date of the white paper’s issue (February 2020), women held just 40 CEO positions at U.S. public banks, representing only 4.31% of all bank CEOs. Specifically, ABA reports that the percentage of women in S&P 500 finance industry drops from 44.7% at entry- and mid-level positions to 19.8% at the board level and just 1.4% at the CEO level.
The number of board seats held by women has continued to increase. Yet women remain underrepresented in the boardroom and leadership roles in spite of documented significant economic and financial gains from increased female participation.
- Revenue and expense ratios improve once the share of women on boards reaches around 17%.
- Return on assets increases once the share of women on boards reaches around 13%.
- An institution’s Sharpe ratio – a measure that indicates the average return minus the risk-free return, divided by the standard deviation of return on an investment – increases once the share of women on the board reaches around 20%.
The case for including women on boards and in executive ranks makes even greater sense when you consider how women uniquely impact current bank industry concerns as described below.
Core Deposit Growth
A big concern for banks today is funding, including cost and type. Access to low-cost deposits is critical to growth and profitability. The optimal mix of infrastructure/delivery systems to attract and retain deposits is evolving. As business owners and job creators, women present a huge lending/core deposit/fee income opportunity.
- Women-owned businesses are growing at a rate that far exceeds male-owned businesses, and 99% of women-owned businesses are small businesses.
- The combination of women-owned businesses and firms equally owned by men and women = 48% of all businesses.
- Female small business owners report their greatest challenge is lack of capital and cash flow.
- Venture capital investment in all-female founding teams hit $3.3 billion in 2019, representing 2.8% of capital invested across the entire U.S. startup ecosystem this year, according to the latest data collected by PitchBook.
Yield Curve
The yield curve has flattened considerably, which continues to put pressure on profitability. With net interest margins (NIMs) hovering near 3%, there has been increased value in ancillary business lines (e.g., wealth management, home mortgages, SBA lending, etc.).
- Women represent potential growth in deposit accounts – both in number and size – in addition to offering wealth management fee opportunities and SBA lending opportunities.
- Women are financial decision makers; women represent 50% of total stock ownership, 51% of all U.S. personal wealth and 85% of consumer purchases.
- Companies with >3 women in senior management score more highly, on average, across 9 categories of organizational excellence, than companies with none.
- Companies with a higher percentage of women on their management committees are also the companies with the best performance.
- Banks perform better once they reach a critical level of gender diversity.
- Women-owned firms employ nearly 9.2 million people, generating $1.8 trillion in sales as of 2018.
- 4.2% of all women-owned firms have revenues of $1 million or more.
Efficiency & Profitability
New technology and investments are required for digital banking. Ongoing regulatory and technology investments have inflated the expense base. Efficiency and profitability need to diversify revenue to combat NIM pressure and increasing operating expenses. The relationship between bank performance and gender diversity becomes positive as the share of females on the board increases.
Internationally, It’s the Same Picture
The Financial Alliance for Women (the Alliance) points to a 2017 International Monetary Fund (IMF) report measuring the large gap between the representation of men and women in leadership positions in banks and bank supervision agencies worldwide. Their econometric analysis suggested that, controlling for relevant bank and country-specific factors, the presence of women as well as a higher share of women on bank boards was associated with greater bank stability, as represented by higher z-scores and lower nonperforming loan ratios.
The Alliance’s 2020 InBrief report, Driving Change - Achieving Gender Balanced Leadership in Financial Services, explores the key benefits of having women in leadership and identifies the main drivers to achieving gender parity in leadership. The report presents diversity program insights from several financial institutions, shares lessons learned and presents key recommendations. As an example, taking the subjectivity out of hiring and with practices like removing name and gender from CVs and using objective, capability-based evaluation criteria, rather than subjective ones like “culture fit,” make it easier to mitigate gender biases.
The Times, They Are A’Changin’
The data certainly confirms that financial institutions can expect to realize significant financial benefits when women are present in leadership roles. Particularly considering the current concerns of banks in this COVID-impacted business climate, the unique impact of women should be compelling motivation to step up mentoring, networking and recruiting programs that advance women to board and other leadership positions.
Your Questions & Comments Invited
We invite your questions and comments on this topic. Don’t hesitate to connect with Kris St. Martin (KStMartin@cbiz.com and 763-549-2267), Vice President of CBIZ Insurance Services and Director of the CBIZ Bank Program. Kris is a former banker himself and has been a long-time proponent of diversity in financial services. The Federal Reserve Bank of Richmond, in collaboration with Bank on Women and The Risk Management Association, hosted the second annual conference “Promoting Growth and Prosperity Through the Banking Industry: The Power of Gender Diversity in the Boardroom and C-Suite” in October. As part of the conference, Bank on Women awards a “Champions Award” – this year, Kris was recognized as the recipient of this award. (Day 3 and award presentation starting at 55 minutes recorded here.)