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Increasing numbers of investors searching for diversity

Home / Press centre / Increasing numbers of investors searching for diversity

Harriet Steel, Head of Business Development
29 September 2016
PressResponsible Investing

Hermes Investment Management, the £26 billion manager focused on delivering superior, sustainable, risk adjusted returns to its clients – responsibly, has today published its second and final paper from its annual Responsible Capitalism survey1.

The annual survey of over 100 leading UK and European institutional investors found that the number of those who believe that the gender diversity of the senior management of an investee company is vitally important or important had more than doubled in 12 months. In 2015, only a quarter of investors placed importance on gender diversity, whereas in 2016, a total of 51% of investors agreed.

Harriet Steel, Head of Business Development, Hermes Investment Management, said: “To see the number on investors who place importance of gender diversity leap up by more than double is extremely encouraging and reflective of the high profile campaigns and initiatives introduced to increase gender parity.

“In our research we believe that the issue for investors appears to be risk, rather than high returns. Investors are growing increasingly aware of the link between ‘group think’ and poor corporate practice. Boards with more diverse composition tend to challenge senior management, be more innovative and make better decisions. These are febrile times and investors increasingly recognise that certain sorts of risk can fundamentally undermine the performance of their portfolios over time. Worse still, they may be accused of failing in their fiduciary duty.”

The Responsible Capitalism survey also showed that despite the gains made in gender, other characteristics of diversity lag behind in investors’ importance; such as race (30%), socio-economic (19%) and educational background (30%). As stated in the ‘Commonsense Principles of Corporate Governance’, recently endorsed by Warren Buffet and others: “Directors should have complementary and diverse skill sets, backgrounds and experiences. Diversity along multiple dimensions is critical to a high-functioning board. Director candidates should be drawn from a rigorously diverse pool.”2

Steel continued: “In the Responsible Capitalism survey it was particularly encouraging to see that only a tiny proportion of investors now consider diversity of board experience (2.1%) and a Chairman independent of CEO (1%) to be ‘not important at all’. Given ongoing shareholder concerns over shared CEO/Chair roles at companies such as JP Morgan, corporate diversity is no longer being considered a ‘nice to have’, but a necessary part of responsible governance.

“Significant political and economic upheaval has prompted governments to look in increasingly greater depth at corporate governance practice. New UK Prime Minister Theresa May immediately took aim at non-executive board members ‘drawn from the same narrow social and professional circles as the executive team’, accusing them of providing insufficient scrutiny. Nineteen nations in the European Union now mandate that employee representatives sit on corporate boards, while US presidential candidate Hillary Clinton has promised corporate governance reform. When diversity considerations draw the attention of policymakers, companies and investors must increasingly take note.”

To download the Responsible Capitalism paper, click here

  1. 1 Survey conducted by Citigate Dewe Rogerson
  2. 2 http://www.governanceprinciples.org/wp-content/uploads/2016/07/GovernancePrinciples_Principles.pdf
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Harriet Steel Head of Business Development Harriet is Head of Business Development, a member of the Executive Committee (ExCo) and an Executive Board Director. She joined the firm in 2011 with responsibility for Sales, Client Service, Marketing, Communications and Product Strategy. Under her leadership, Hermes has built a fast-growing and profitable third-party business in which assets under management for external clients have tripled, and revenues grown from 15% to 52% of the total. As a member of ExCo, her responsibilities include development of corporate strategy and delivery of profitability. Appointed to the Board of Hermes in 2013, Harriet became the company’s first female executive director. Harriet’s career in the City began in 1990 after graduating from Princeton University with a degree in architecture. She joined the global trading team at Bankers Trust, initially trading currency options and subsequently holding senior derivatives sales roles in Paris, London and New York before joining Morgan Stanley’s fixed income group in 1996. In 2003 Harriet established Portico Advisors, an asset raising and marketing advisory firm for alternative investment managers, including hedge funds, private equity and real estate strategies, which she ran until joining Hermes. Harriet acts as a mentor to female executives at Hermes, encouraging them to fulfil their potential and providing practical insight and guidance on how to achieve success in the City. Harriet is a regular commentator in the print and broadcast media on business, economic and diversity issues and, for the last three years, has been recognised as one of the top 100 women in European finance by Financial News.
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