Leading companies across the world today devote considerable resources to promoting gender diversity and better working conditions. Conventional wisdom suggests that improved diversity and working environment have an impact on profitability.
But is this link clearly measurable? Credit Suisse's recent research explored the impact of diversity and modern progressive working conditions on the performance of large companies.
The Nordic experience
To evaluate diversity, we looked at key criteria like the level of female work participation in 2009. Nordic countries scored the highest on this criterion with a participation of slightly over 70 per cent, followed by Switzerland.
We combined this data with indicators that could create a flexible work system, such as institutionalised child care or the possibility for spouses to work part time. Denmark, Sweden, the Netherlands and the United States scored the highest on both measures. Unfortunately, no data was available for emerging markets in our study.
Our study also evaluated companies on the basis of the participation of women in senior management. We gathered data from the most recent annual reports available from the largest stock-exchange listed companies by country (Nordics, Germany, Italy, France and Switzerland).
Nordic countries scored well on female senior management. In some countries, quotas ensure a minimum of 20 per cent female participation at senior level.
Recently, German DAX 30 companies agreed to implement voluntary quotas for women at the senior management level this year, and to publish individual female quotas for different management levels.
Next we looked at the performance of large companies that scored well under the diversity criteria mentioned above. Our analysis focused on the period from 2008 to the end of first quarter 2011 and on companies with a minimum of 10 per cent senior female staff and 20 per cent overall female staff.
Again, the selected Nordic companies screened well for the period under review. For example, their banking sector proved to be very stable during the chosen time horizon. Nordic countries in general were less affected by the financial crisis. On a relative basis the European companies also screened well. The outperformance of Nordic stock markets might relate to their more defensive nature and limited US exposure.
The results of the research point to the importance of providing a flexible work system. Flexibility in the working system could be important for companies in the context of changing demographic trends in the global workforce.
Generation Y
Generation Y, or people born during the 1980s and early 1990s, are today entering the workforce. Generation Y grew up using technology, such as computers and cell phones. They are IT savvy and regular users of smart-phones and social media platforms.
According to studies, Generation Y is convinced that lifelong learning is a must for performance, and as a "digital" generation, they can learn anywhere and at anytime. Their loyalty depends on learning opportunities. They are independent and entrepreneurial thinkers. They seek challenging work but demand a high degree of personal freedom and flexibility.
Going forward, firms that already allow a flexible work style may be best positioned to capture the full potential of the workforce.
This brings us to the question of how we can use diversity indicators to make investment decisions. Credit Suisse's approach is to make a well-rounded investment decision. Stocks certainly have to screen well under fundamental criteria, as reflected in our 12-month BUY rating. Secondly, the higher the sustainability rating of our provider, Innovest, the better — an "AAA" would constitute the highest possible rating. Thirdly, we have established minimum diversity criteria for investment — 10 per cent female participation in senior management and 20 per cent female employees in the overall workforce.
The writers are Head of Banks and Financial Services Research and Head of Thematic and Derivatives Research respectively at Credit Suisse.
