Women in leadership positions: Nordic countries at the forefront of transformation

Tomorrow we celebrate International Women's Day. This is a good opportunity to analyze our thematic basket: "Women in leadership positions". Despite growing evidence that a greater share of women in leadership positions translates positively into long-term stock returns, over the past year our basket did not reflect this. As a result of the review, 12 companies were replaced by other entities. The key observation of the new basket is that the Nordic countries are over-represented in relation to their presence in the stock markets – there are as many as six Nordic companies in the basket of 20 companies.

Last year's results and a re-examination of the case for diversity in leadership positions

We established the "Women in Leadership" thematic basket because we wanted to present the subject of environmental, social and governance (ESG) issues from a slightly different angle than usual. Since the environmental aspect, marked with the letter "E", has already been largely included in our baskets for renewable energy, green transformation and energy storage, we decided that it would be worth capturing the "S/G" topic in a more interesting way, by highlighting companies with the largest share of women in managerial positions in the entire management team and on the board.

There is growing evidence in the literature that gender diversity in corporate leadership has a positive impact on long-term performance, and Credit Suisse's 2016 study Higher Returns with Women in Decision-Making Positions ("Higher return in companies with women in decision-making positions") contains links to a lot of valuable information in this regard. Similar to portfolio diversification for better risk-adjusted returns, management should also be diverse in terms of gender, age and other characteristics to ensure that different perspectives are taken into account in the decision-making process. Although the literature on male overconfidence varies, and scientists do not know how to properly isolate this effect, there is strong evidence of male overconfidence in trading and investing compared to females. If this trait extends to general decision-making behavior, you can understand why male predominance in a company can lead to suboptimal decisions, and thus to unfavorable results in the long run.

As we celebrate Women's Day tomorrow, March 8, we are re-examining the arguments for more women in leadership positions and why it matters. Despite evidence of better stock returns in companies with female-majority leadership, our basket performance over the past year does not reflect this. Since last Women's Day on March 8, 2022, the performance of the "Women in Leadership" basket has been in line with the MSCI World Index, down 1,3% compared to a 1,2% drop on the index. Five-year performance is better, but as with all other buckets, be aware of selection bias as we pick the highest market capitalization stocks in each thematic category at the outset, which tends to inflate historical performance, highlighting the conventional wisdom that past performance is not an indicator of future performance.

Basket update and the advantage of the Nordic countries in the context of women in managerial positions

As part of this year's update of the "Women in Management" basket, we removed 12 companies and replaced them with 12 new entities. The composition of the new basket is presented in the table below, and its total market capitalization is USD 860 billion, while the median share of women in management positions is 55%. The median revenue growth of these companies is 17% compared to last year; these companies also have generally high operating margins with a median of around 22%. All stocks show a positive spread over the target price, which means that the target prices are above current prices.

It is worth noting that the basket is dominated by Norwegian companies (four entities), and if we add the Swedish company Investor and Danish Novozymes, as much as 30% of the entities included in the basket come from the Nordic countries. This underscores that the region is at the forefront of the transition towards more women in management.

When selecting companies for this basket, we consider entities with a capitalization of more than $10 billion, listed in North America, Europe, Singapore, Australia, Japan, Hong Kong or New Zealand, with more than three women in leadership positions, to avoid overstating We calculate this share for a small number of executives, and then filter the results by market capitalization in order of highest to lowest. After applying these criteria, the basket consists of the first 20 companies. In this context, a woman in a management position is defined as a member of the management or executive body, including the board.

About the Author

Peter potter - director of equity markets strategy in Saxo Bank. Develops investment strategies and analyzes of the stock market as well as individual companies, using statistical methods and models. Garnry creates Alpha Picks for Saxo Bank, a monthly magazine in which the most attractive companies in the US, Europe and Asia are selected. It also contributes to Saxo Bank's quarterly and annual forecasts "Shocking forecasts". He regularly gives comments on television, including CNBC and Bloomberg TV.