What if Lehman Brothers Had Been Lehman Sisters? Revisited.

In the immediate aftermath of the Great Recession of 2008, a theory was put forward by award-winning journalist and author Nicolas Kristof. What if Lehman Brothers had been Lehman Sisters? He opined, with others later joining in, that the financial meltdown of 2008 might never have happened if there had been more women in decision making roles in the world’s financial institutions. Quite a bold statement. And as you can imagine, his theory was met with skepticism, push-back, and outright denial. I happened to share that theory, and was working on a research paper that asked a similar question. Why so few women in decision making roles in money management? To answer this question I co-sponsored a study by the National Council for Research on Women that would look specifically at this issue. In 2009, Women in Fund Management: A Road Map for Achieving Critical Mass – and Why it Matters was published, and it turned out that Kristof was on the right track. The key finding of this study was that funds with a more diverse decision-making team produce better returns. Now, would that have been enough to prevent the Great Recession? I suppose we’ll never know. But what was clear from the research was that having more women in decision making positions at our financial institutions would likely have been good for the businesses, good for investors and could have potentially had a far reaching positive ripple effect.

Armed with this evidence, I naively hoped that things would change. I thought that people, powerful people in decision making roles at financial institutions, would look at the numbers and realize that they were missing out on an incredible business opportunity by not utilizing the full depth of human experience and perspectives. Further, I am sure there was next to no one who wanted a repeat of that sort of meltdown. But here we are, 13 years later, and women still occupy only 14% of all fund manager positions worldwide. The same number as in 2000.

Why did the market crash? Here is one explanation. "The stock market crashed in 2008 because too many had people had taken on loans they couldn’t afford. Lenders relaxed their strict lending standards to extend credit to people who were less than qualified. This drove up housing prices to levels that many could not otherwise afford."

At this point I should note that I am not the only person to have studied this issue. Not by a long shot. There is a mountain of evidence that supports the conclusion that diversity, generally speaking, improves decision making and outcomes. I have been collecting this research for over two decades, and I publish a list of the top reports every year. My collection now spans over 800 reports in 20+ different categories, and that is only the tip of the iceberg of what is actually out there.

When it comes to the financial space, I have a whole section dedicated to the field of gender lens investing. This term was first coined in 2009 by Jackie VanderBrug and Joy Anderson to refer to the practice of considering gender when deciding on investments. So what does it mean to consider gender? This can take the form of investing in companies that have a critical mass of women on their board and/or executive team, companies that have strong policies that encourage gender equity in the workplace, and/or companies that produce products or services that improve the lives of women or girls, just to name a few. Gender lens investing as a movement has steadily picked up steam since 2009. In fact, a recent study showed that 67% of global asset owners identify gender diversity as an area of interest within their investment portfolios. And yet, despite all this progress, the number of women in fund management positions has barely moved in over 20 years. Clearly something is not working.

Last month, a new book was published that tackles this issue head on. The XX Edge: Unlocking Higher Returns and Lower Risk looks at the fact that having more women in investment roles is simply a good investment strategy. Authors Patience Marime-Ball and Ruth Shaber are both seasoned investors and executives with decades of experience between them. Using evidence from all asset classes, they demonstrate the inherent gender differences between women and men, and why these differences have exemplified women as excellent financial decision-makers and investment collaborators.

However, they are also aware that what they are saying is nothing new. The idea that more diverse decision making teams is good business is not a new concept. But the needle isn’t moving, certainly not anywhere close to at critical mass, and Patience and Ruth want to change that. They theorize that the problem comes from a lack of engagement with men. Personal experience has shown them that men in financial spaces are either uninterested or unaware of gender lens investing; a status quo that has to change if greater systematic change is ever going to happen. Therefore, this book was written specifically to engage with men; to show them the unique talents that women bring to investment, and to demonstrate how these talents pay off in the form of greater returns. Most importantly, they emphasize that theirs is an addition strategy, not a replacement strategy, and how adding more women is the right thing to do for business.

I recently had a chance to talk with Ruth and ask her some questions about her work and the publication of this book. Here’s what she had to say.

Jacki Zehner: Ruth, you and Patience are two very busy women. Why take the time to write THIS book in THIS moment?

Ruth Shaber: The world is facing huge disruptions and dislocations, including climate change, violence, political instability, and a pandemic.? We need to find a new way of solving the world's challenges. Putting women at the center of financial decision making across all sectors and asset classes is the most promising opportunity to flip the paradigm for both financial and social outcomes. We are excited to share our research findings that provide a rationale for why women are essential financial decision makers; they tend to be more collaborative, more risk aware, and are less likely to sacrifice the long term outcomes for short term gains. Furthermore, women are much closer to the problems that need to be solved. We know that when those who are closest to the problems are engaged in innovation, more efficient, profitable, and sustainable solutions are found.??

JZ: Why did you decide to come at this issue with the goal of engaging men?

RS: So much fantastic work has been done in the area of gender finance.?Measurement standards have been developed and validated, products are being created in both the public and private space, and as you know well, we are all seeing convincing evidence that when women are actors in financial markets, both financial and social returns are better. However, it is clear that those of us who have drunk the "gender finance kool-aid" are just talking to ourselves. It's time to fully engage the men who are currently in control of over 97% of the capital in the world.?

JZ: You cite a lot of research in this book. What are a few of the statistics that stand out the most to you?

RS: There are two types of statistics worth noting. First of all, the lack of women currently engaged in finance, such as that 97.8% of allocated investment capital is managed by men; of the Fortune 500 companies, only 41 of them are led by women; just 14% of private equity fund managers are women, and less than 3% of venture capital is directed towards enterprises founded or run by women. But, more exciting, are the statistics that demonstrate the outperformance of gender diverse teams when compared to all-male teams across every asset class. For instance,?

• Gender-inclusive teams are 21% more likely to see outperformance in profitability relative to peers.
• New companies with a female founder performed 63% better than those with all-male teams over an observed 10-year period.?
• Women-run hedge funds outperformed the average of larger hedge funds by a margin of 6% over a six-and-a-half-year period.
• Women-owned SMEs had significantly lower than average non-performing loan (NPL) ratios.

JZ: What does success, as it relates to this book, look like for you?

RS: Our goal is to flip the face of finance to be gender diverse. Our 10 year goal is to move the amount of allocated investment capital in the world to be managed by women from 3% to 30%.?

JZ: What are a few simple actions people can take?

RS: Invest with gender diversity.?This means screening your assets for teams that are at least 30% women. This includes representation on public boards, executive teams, entrepreneurs, and VC funds. If you are running a company yourself, hire and promote more women to senior positions. Mentor women (especially if you are a man). Vote for women at the local, state, and national levels. And vote your proxies as a shareholder.?Finally, spread the word about The XX Edge!

JZ: Thank you Ruth for your time.

In closing I have a few questions to leave you with. Why do you think change has not happened more quickly? More specifically, why does the financial services sector, capital allocators, remain so male dominated? And for that matter, do you think that it matters, or not? Solutions are also welcome. ( If you are reading the newsletter version pop over to LinkedIn to post your thoughts.) As a woman who started a career in financial services over 30 years ago I really did believe I would see the scales much more balanced by now. In my opinion would that balancing be a good thing? Both my head and my heart say heck the heck YES! At least let's give it a try.

*The research paper mentioned above, and found here, had a robust solution set which I think still apply today. The 10 point solutions start on page 18. I am really feeling it is time to update the paper and seek greater collaboration to truly move the needle. If you are feeling the same way post in the comment section or message me.