The ‘Big Three’ of BlackRock, Vanguard and State Street Global Advisors (SSGA) could be responsible for up to two-thirds of the 50% spike in women on US company boards in recent years, according to a paper by the National Bureau of Economic Research (NBER).

The research, titled The Big Three and Board Gender Diversity: The Effectiveness of Shareholder Voice, found campaigns launched by the index fund giants in 2017 pushed US companies to appoint “at least” two-and-a-half times as many female directors in 2019 as they did in 2016.

It added a one standard deviation increase in ‘Big Three’ ownership accounted for a 76% increase in new female board members, an 11% boost to female director numbers and an almost one-fifth decline in the number of US companies with no female directors during the three-year period.

Overall, female representation on US boards increased by half – from a modest 13.1% to 19.7% – and between a third to two-thirds of this shift can be attributed to the efforts of the three institutional investors, the report noted.

Speaking on how these tangible shifts materialised, NBER said: “Firms increased diversity by identifying candidates beyond managers’ existing networks and by placing less emphasis on candidates’ executive experience.

“Firms also promoted more female directors to key board positions, indicating firms’ responses went beyond tokenism.

“Our results highlight index investors’ ability to effectuate broad-based governance changes and the important impact of investor buy-in in increasing corporate-leadership diversity.”

Illustrating how ownership by index funds had a causation rather than correlated relationship with greater gender diversity, the paper said there was a “largely linear” trend between ‘Big Three’ company ownership and post-2016 increases in women on boards.

In fact, firms with greater ownership by the trio in 2016 were more likely to appoint female directors to key board positions such as chairing of audit and nominating committees.

Also, the share of a firm’s equity held by an asset manager and the timing of their gender diversity campaigns acted as predictors of changes to the composition of company boards.

State Street’s “Fearless Girl” campaign launched in March 2017 was the first meaningful push by the asset managers to increase board diversity including threats to vote against re-electing nominating and governance committee chairs on company boards that “failed to address gender diversity in any meaningful way”.

In practice, this saw the firm increase its voting against nominating chairs of companies without a female director from 20% before 2017 to nearly 70% after its campaign began. In contrast, its votes against nominating chairs in other companies remained unchanged at around 10%.

Vanguard and BlackRock’s commitments to vote against re-electing directors in companies with unequal boards commenced in late 2017 and early 2018, respectively.

NBER’s findings on changing the gender composition of company boards illustrate the impact large index fund issuers can have when they choose to engage. How this power grows, how it is regulated and who decides which causes it should be used to support will be key questions for the industry in the years to come.

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