Ingo Speich is a middle-aged man. A man whose job it is to ensure that soon fewer people of his own kind have the say in the management floors of German companies. His employer, Deka Investment, invests its customers’ money in company shares. Speich, who heads the “Sustainability & Corporate Governance” department, expects these companies to stop relying on white men in the second half of their lives quite as often in top positions. “If a company does not have a heterogeneous structure, then far too much potential remains untapped,” says Speich. That’s why more diversity is “in the interest of our customers”.
The long-standing fund manager is not alone in this assessment. A study of the initiative “Investors 4 Diversity” from the Berlin School of Economics and Law (HWR) shows that more and more institutional investors are putting pressure on companies to rely on mixed management teams. They are concerned with more women in top positions, but also with people with a different cultural background or degrees other than the usual business administration diploma. However, the study also shows that investment companies often do not act according to their own maxims.
Since institutional investors such as Deka, Union Investment or US giants such as Blackrock and Vanguard hold a comparatively large number of shares in the companies on behalf of their customers, they have power: If they believe the company is moving too little or in the wrong direction, they can Use voting rights at the annual general meeting of shareholders to vote a vote out of confidence in a member of the board of directors or board of directors. The new study shows that while in 2020 half of the 30 most influential investors still made a gender-mixed composition of the management bodies a condition for investing in the company, 73 percent wrote this down in their investment guidelines last year.
“The investors are not doing this out of goodwill, but because they see the importance of diversity for good corporate governance,” says study author Philine Sandhu from the HWR. In fact, research suggests that diverse teams have a positive impact on business success and stock price. On However, a causal relationship has not yet been proven will.
Ask first, then apply pressure
To find out whether a company is really making progress on diversity, fund managers regularly survey the board of directors. Because this body occupies and controls the board of directors in a corporation. “The talks with the supervisory board members often give an impression of how seriously the company takes diversity,” says Speich. If the picture emerges that this is not the case, investors can draw what Speich calls the “sharpest sword” and refuse to approve the actions of the governing bodies.
But that is often not what happens. No matter how much they insist on diversity in theory, the investors surveyed voted against their own guidelines in 39 percent of the cases. They voted for a male candidate even though their own gender diversity requirements had not yet been met. “This discrepancy surprised us,” says study author Sandhu.
The research team explains the result as follows: There is a lack of standardized data that can be used to check how companies are actually progressing. How do you promote female talent? Where on the career ladder do they get lost? Are women paid less? “The further down we look in the company’s hierarchy, the less transparent it becomes about how positions are filled there,” says Ingo Speich from Deka. And: The more difficult it is for investors to get an idea.
An EU directive that provides for stricter transparency obligations for companies could bring more insights from 2024. The responsible Federal Minister for Family Affairs, Lisa Paus, also explains that she would like “criteria such as diversity, equality or compatibility in companies to be measured, disclosed and integrated in the future much better”. There is one catch: the funds and investment companies are themselves heavily male-dominated. “Maybe that’s why some people lack a certain sensitivity to the topic,” Sandhu suspects. Deka-Mann Speich does not want to dismiss this completely, but also says: In his team, which has made diversity an issue, the proportion of women is more than 50 percent.