In 2014, America’s big tech companies did something surprising: they told the world about the low number of women they employed. Men accounted for 70% of Google’s workforce; Facebook, Apple and Twitter had a similar proportion. The absence of female presence was even more significant in senior leadership positions and technical positions.
Most of the business world has come to believe that workforce diversity is good for business outcomes, and technology companies hoped that their new transparency would result in greater equality. It wasn’t like that. But a new study suggests that investors were paying attention.
In an analysis published today by Stanford Graduate School of Business, researchers at that school and Northwestern found that stock prices rose when companies reported greater-than-expected gender diversity; the price fell when companies announced disappointing demographics. Academics observed the same trend when they turned their attention to financial companies. A laboratory experiment showed the same trends, and participants expressed several beliefs that explained why they were more likely to invest in more gender-diverse companies.
Google was the first to publish its figures, and after considering other factors, the researchers calculated that the company’s stock fell by 0.39 percentage points due to the news. They projected that if Google had announced that women constituted 31% of its workforce, instead of 30%, the company could have added $375 million in market value. «This is a great answer,» said Margaret A. Neale, one of Stanford’s leading researchers and a professor.
They also used Google as a benchmark to see how the market reacted when companies reported more or less diversity compared to an industry leader. They found that a company’s diversity compared to Google «strongly» affected the share price. A technology company whose workforce was 1 percentage point more diverse than Google’s recorded, on average, a 1.91% increase in the short term.
After the first year the companies published diversity reports, the stock did not react much, which Neale attributed to the fact that the demographics had not changed much. «Bad news was already in the share price,» Neale said.
The researchers then turned their attention to banks and financial companies. Researchers used data that 50 financial institutions shared with financial times in 2017. Big banks appeared to have a more equal workforce than technology companies: women made up 54.4% of the employees in JPMorgan Chase, according to the report; Bank of America’s workforce was divided equally. Companies without a retail presence, such as Morgan Stanley, are more unequal.
According to the researchers, companies with the greatest gender diversity recorded a stock market hike against companies that reported having fewer women, the same trend they observed in the tech industry.
Taking into account the positive market response, the researchers conclude that organizations are systematically underinvesting in gender diversity. Despite promises, these figures have not changed since companies began reporting data publicly. This year, Google said women made up 31.6 percent of their company, just a 1.6 percent increase over five years ago.
«People are not confused. They know that the female population is greater than 30%,» Neale said. If Google went up to 40%, there would be champagne toast.»