Franklin Resources, Inc. (BEN) Earnings Call Transcript & Summary

Hello, everyone, and welcome to today's webinar. My name is Stephanie Potter, and I am an ESG specialist at S&P Global Sustainable1. Sustainable1 is S&P Global's ESG and Sustainability Center of Excellence. It is my pleasure to moderate today's webinar titled Beyond ESG focused on the impact of gender diversity with an equity fund performance. This is a part of S&P Global Sustainable1 beyond ESG webinar series, which focuses on providing corporates and investors with the insights they need for building and refining their sustainability playbooks. I hope we can make today's session as interactive as possible. So please ask questions, and we will attempt to answer them during our session. At the bottom of your screen, you'll see a row of widget icons. These icons will allow you to interact with us throughout the session. I would like to point out the Q&A widget, which can be used to submit questions to the panelists myself, as well as the survey widget. We also ask that you take time to fill out our short survey after the webinar value, your insight. And additionally, you can find any of the reports discussed today in the resource widget. The webinar is being recorded, and an on-demand version will be available shortly after we conclude. If you encounter any technical issues during the program, try to refresh your browser. Of course, if issues persist, use the Q&A widget to contact us and a member of our technical team will assist you. So without further ado, it is my pleasure to introduce today's panel. We have Katrina Dudley, Senior Vice President and Investment Strategist and Portfolio Manager at Franklin Templeton. Stephen Lawrence, Senior Investment Strategist and Investment Strategy Group at Vanguard and our own Mona Naqvi, Global Head of ESG Capital Market Strategy at S&P Global Sustainable1.

So to kick us off, Steve, it would be fantastic for you to really give us a sense for what galvanized this webinar. You recently published a study called diversity matters, the role of gender diversity on U.S. active equity fund performance.

Thanks, Stephanie, and thanks, everybody, for joining us today. So really, this research that I published a couple of months ago on diversity matters that is available in the resource center, started off with some work that some of my colleagues at Vanguard had done titled The Active Edge, where we wrote down what Vanguard believes and the characteristics that we look for in active managers to identify potential for outperformance. And one of the dimensions that they had looked at was team quality and diversity. And they cited a number of research pieces that looked at the various different aspects of team composition. And as we were looking at this, we realized there is still an opportunity to do more in the space of understanding the relationship between diversity and fund performance. So if we pull up the first slide here, what I did with this research was look at 2,700 U.S. active equity funds and asked the question of do investment team diversity impact the performance? So we took a database of all investment professionals and then looked at the biographies of these investment professionals. So we used NLP to extract various different information, including information about their education and their preferred pronouns and that's part of what made this study unique and the ability to go beyond what had been done before because we're looking at a broader range of investment professional more than just the named PMs that would get named on prospectuses. And we're also not relying on self-reported data. So this gave us the ability to ask much more broadly, does the diversity of the entire investment team impact our performance and do gender diverse teams outperform single gender teams. So if we go to the second slide to give a quick overview of the results, if we separate the world out into teams based on the gender composition, we find that all male and all female teams tend to underperform the benchmark, roughly 12 and 6 basis points below the benchmark on average per year. If you look at mixed gender teams, there's outperformance, about 10 basis points. So immediately, just without even controlling for anything else, gender ends up adding value. But if we then subsequently focus on just those teams that are well educated, that have a majority of people in the team having attended some form of [ I believe ] education. And not to say that I believe is the best form, but it's a good proxy for a well-qualified team. We found that all male teams still underperform, all female teams improved slightly but gender diverse, well-educated teams have 104 basis points of outperformance per year. So that's a very quick overview of the primary result. The rest of the paper, if we go to the third slide, really leverages the various regressions to isolate the sole impact of gender diversity. What we do in the paper is we look at various other aspects of diversity, team quality and the characteristics of the fund we control for those to really see what impact gender diversity alone brings to the performance of a fund. And we find them moving from single gender to a 50-50 mix of male-female increases performance by 38.9 basis points a year. So paper itself provides far more details about how we get to this, but the takeaway from this is the funds aren't addressing team diversity. They probably aren't maximizing their performance. And that's really sort of the impetus of this entire webinar today is to unpack that question of how we maximize performance and how we improve diversity in investment funds.

Fantastic, Steve. Thank you for that. So we can see that more diverse fund management teams have high potential. But there are a number of barriers to gender diversity and fund management. Katrina, can you provide maybe a quick overview of your book, Undiversified, which I actually have right here, highly recommend anyone interested in the topic, give it a read. But Katrina, over to you.

Yes. Well, thank you for having me, and it's always a pleasure to be on a panel here with you, Stephanie and Steve and Mona. So we had -- going back a couple of years, I had a chance meeting with an old friend of mine in Central Park and both of us had expressed a frustration that we both felt. Being -- 20 years ago when we started our careers in finance, we were often the only female in the room. And fast forward 20 years later, we will still be only women in the room. And we were really frustrated at the lack of progress our industry had made. Only 10% of fund managers are female. So it's very much lower than the general population. And we looked at ourselves and we looked at our careers, both of us really enjoyed what we do. So it wasn't that we didn't like our jobs and we were miserable, it's a very financially rewarding career. And we thought that women should be able to access that. And also there was that issue of equity. So we studied the funds management industry because we were both practitioners of it. And interestingly, it turns out that it's one of the best industries to study in terms of understanding the barriers to gender diversity because we have what we call objective performance criteria. And that means that every day I get up as a fund manager, and I know if I'm beating the benchmark, which is my performance criteria or not. And so we studied those barriers. We wrote the book. It's supposedly targeted people at all parts of the supply chain into investment management. So we started -- the research started as early as young children and how families talk to young boys and young girls differently about finance. And we went all the way through undergraduate, graduates. So we spent the first half of the book explaining the industry because most people don't understand funds management in the industry. Then secondly, we go through an analysis of what we call the supply chain. And we look at the flywheel. And that flywheel is that when we interviewed undergraduates, many of them didn't enter into finance because there was a lack of female role models, and that your notion that you can't be what you can't see. And we know if we're not recruiting women into the industry, we can't then focus on retaining them. And if we can't retain them, we can't promote them. And if we can't promote them, we don't have females at the top of our organization. So that's the flywheel that we analyzed. And then we spent the final [ foot ] of the book looking very positively as how do we move forward. And we have solutions that are geared towards allocators in particular. We also look at industry inside as individuals as well as the firms. And then finally, we actually challenge people who influence, so the media, finance professors at school. So that's undiversified and it was really written because we wanted to move the industry forward from having just 10% of female portfolio managers to hopefully 50% in the future.

Yes. Thank you. And we got one question here, too. Why does the research on diversity focus only on gender? What about BI, POC and other marginalized or racial groups? And first of all, I want to recognize that, that's very important. This is certainly one that we wanted to intentionally focus on gender. But if there are any other comments in the -- for folks on the panel, please do feel free to weigh in.

I can...

I think I'm happy to address that from the perspective of my paper.

Fantastic.

So in the paper, we obviously looked at gender diversity as the primary factor there. We also looked at other measures of diversity of thought. What we were really focused on was if data that we had concrete information on. And almost every single investment professional has a biography that includes preferred pronoun. So it's relatively easy to get a broad amount of information from that on the gender of people and the teams. It's a lot harder to infer things like a race or ethnic background from research. People have done that using transformations with the name using census data to try and infer people's backgrounds, but we wanted to really make this something that was concrete that we could focus on. And I think the -- my hope and expectation is that if this plays out in gender diversity it would also play out in other aspects of diversity. There's no reason why gender is, in particular, special above all else, but it's something that was a start. We can get a concrete answer on this and then look for annotative ways to address the question more broadly.

And Katrina, did you want to add to that? That was a fantastic question.

Yes. I think that Stephen comes at it from the data angle and I always love the fact that you were able to mine it so much more elegant than when we were able to in the book. We did a lot of hard coding of answers and everything. The particular reason that we didn't address it is we thought that given that the population is 50% women, and we were performing so up fairly on that metric, it was better just to focus there. But I think throughout the book, we continue to emphasize its diversity on the team that is important. And that diversity can come from various different angles. It can come from educational diversity. It can come from ethnic diversity. It comes from socioeconomic diversity and it comes from gender diversity. It will come -- also comes from age and experience diversity. And the reason is, is when you're making investment decisions, you want to make the best decision for your investment. You want to make sure that there's no high-status person in the room that's driving out those diverse opinions because even if someone raises a non-consensus view, it may not be the view that you ultimately adopt. But if you have considered it, it means you've got a higher quality and much better investment recommendation. And that usually means you're going to see higher performance.

Okay. Yes. And thank you for that, Katrina. We -- so we have a lot of questions, to be honest, but some of which I might have to get to a little bit later, but let's just go back into out introductions event. We have data and research on gender diversity in the fund management space. Thank you for that Steve and Katrina. But investment management is not the only area of the economy with a growing amount of gender-based data. So Mona, over to you. What are the ways that you see companies becoming more transparent on gender?

Thank you, Stephanie. Really interesting research from both Stephen and Katrina, that I think really underscores the material benefit and relevance to having more diverse teams. And of course, when it comes to fund management, that's something that's easy to measure with very clear statistics and data. But of course, I think as the research was suggested, this applies to all different types of diversity and all different types of business operations. However, I do think it's fair to say that although we may, as a collective society have a view as to an ethical rationale as to why we may want more diverse teams throughout the economy in all different sectors in some industries. There are some where we see the benefits of that played out more in terms of the bottom line than in others. And I think that's okay. We at S&P in our ESG data collection approach we have different types of data metrics that we look together. For example, in our ESG scoring approach, we definitely do combine that mixture of financial materiality and relevance along with societal impact but different investors may be looking at this data for different reasons. It is totally reasonable that an individual who is looking to allocate capital in their own portfolio may decide to align and concentrate their assets into companies that are more diverse because of an ethical reason, or quite simply because they've seen results like these that we've today and actually see there then probably some financially material benefits to my bottom line. So there are certainly different reasons why this data is interesting from an investor's context. And we, at S&P Global, supply the markets with data to fulfill different types of objectives and questions. The way we go about collecting this information is pretty interesting. If you look at the history of corporate disclosure from companies across all different industries, I think as a collective, the markets are traditionally focused on more financial data, right? So balance sheet flows, cash flow of analysis. These are your traditional financial reportings from a sort of 10-K, for example. But as more and more research like this has shown a light on, we can see now that there are actually maybe material hidden risks and opportunities that are not currently being captured by this analysis by your traditional disclosures. So this is where ESG comes in. It's really a gap filler to try and round out our view of financial performance. We engage companies directly. We survey them. That gives us a little bit more flexibility to ask very pointed questions. So we don't need to just ask, for example, what is the workforce breakdown of your employees into different genders or other types of diversity, but we can even ask interesting questions like, for example, how many women or other types of diverse profiles do you have in revenue-generating positions? Because what we often find is that when you simply capture this data at the aggregate level, we see that we have women, for example, pretty well represented in companies overall, but they tend to be concentrated in teams such as supporting functions, maybe back office functions, perhaps HR and marketing, not necessarily so much in those traditional strategy or revenue generating positions. But as I think Stephen's research really nicely corroborates this. As we've just seen, it's not just about having more women or more men or more other types of diversity, but actually having diversity in the teams that mix. And so back to the question, if at the company level, you have really good overall aggregate statistics on workforce breakdown, but if those teams and the way they operate on a day-to-day basis are either all women or all men, you're perhaps not reaping the benefits from a material standpoint from that diversity. So starting to dive even deeper than those headline metrics and understanding, okay, not just what is the overall proportion of females in my workforce or other diversity metrics but actually, how diverse are the underlying teams all the way through every level of the organization, whether it'd be marketing or HR or whether it'd be strategy and finance and other types of revenue-generating positions where you can really see if the strategy throughout the business is benefiting from that diversity. And again, you may not have an interest in the material upside from a -- in terms of the earnings and the bottom line, but it's a pretty nice endorsement for having a more diverse workforce, whether or not you buy into the ethical rationale.

And thank you for that, Mona. I'm getting a number of questions in the chat. I'm just going to aggregate a few of them, as I think we'll have some interesting answers from the panel. From an engagement perspective, is it more important to engage companies on a lack of diversity at the Board level? Or to be more focused on the lack of diversity at the manager level?

So from my perspective, in terms of the types of information we look, this is a similar question to what was asked previously around why don't we capture other types of diversity. Traditionally, I think ESG data has concentrated on the board because that information is public. It's easy to very quickly confirm and validate those data inputs. However, our ability to go beyond simply what's listed in the public domain or what's currently disclosed by companies publicly allows us to drill deeper. And as I mentioned, it's not just about the aggregate breakdown. But actually, if you look at individual subcategories of business functions, and teams, you're more likely to reap the rewards of that diversity more and more. We try to capture all of that. We engage companies, we put up the questionnaire, that allows us to dive deeper. And it also serves as a very important tool for companies to benchmark themselves and actually monitor that progress. because those aggregate numbers can be a little bit misleading. So I definitely think diversity is beneficial at every level of the organization. Unfortunately, due to data limitations, sometimes we have to focus on those, easier to gather metrics like at the board level, but certainly, it's something we see evident as beneficial throughout at every level.

Fantastic. So moving along here, tracking DEI or diversity, equity and inclusion as a company becomes increasingly important. So internal for companies from a corporate perspective. Steve, how can corporate place more focus on gender and DEI overall? I know that Vanguard has a heavy focus on this.

Yes. So I think sort of build off of what Mona said. Certainly, data statistics, goals, metrics are important first step in understanding. If you don't know how your diversity stacks up at various different levels, it's very difficult to enact the change that you need within an organization. But I also think it's important to go beyond the data and this is kind of something that I think Katrina spoke to, does a really good job of highlighting that this isn't just about achieving a certain target number that, for example, my paper does a lot of work trying to understand how the numerical values relate to performance, but I can't describe how that team operates. I can't tell you do women experience equity within a team? Do they feel included? And that's where a lot of the programming that happens internally at organizations becomes important. Are they surveying their employees? Are they establishing programs to help address underrepresentation and to help train people on unconscious bias? Are they investing in employee networks that will help to foster underrepresented groups within the organization. And all of those things that at Vanguard we're doing to really promote diversity and to help improve the employee experience to the organization.

Yes. Fantastic. And then in addition to that a lot of women are keen to have more transparency and where pay is distributed throughout the company overall. So at S&P, we've placed a lot of focus on gender pay equity. We now conduct annual pay reviews to ensure fair pay for our employees based on both gender and race. And in addition to higher pay transparency, we are providing our folks with really avenues for career growth. So in 2020, we introduced a program called Global Career Coaching, where certified coaches offer confidential, individual and customized support to help our people identify and fulfill their career aspirations. So that pay transparency becomes very important as well. And so going back to fund management, what are the qualitative reasons why more women are not in investment management Katrina?

I think there are a number of things. First of all, the career path from analysts to portfolio manager isn't clear. And I don't think that the fund managers have done a very good job of highlighting how you make it from an analyst to a portfolio manager. Secondly, being a portfolio manager is a job you self-promote yourself into. You need to kind of put your hand up and say, I want to be a portfolio manager. And women, we know have a confidence deficit that's been studied in multiple different avenues. And that lack of having that self-confidence means that they're not self-promoting. The other thing is that there's a massive confusion in our industry between what we say confidence and competence. So you think about it. I mean how many times have we been in a room and someone is like, this is a tenbagger, they're banging the table. It's going to go up and you've got to buy it. It's usually a male. And the female may come to you with an investment recommendation and it's a lot more balanced. It will say, look, I think that this idea has 40% upside. But here are also some of the risk factors that we need to monitor. Now as a portfolio manager, I think that the second type of pitch is much better for my portfolio, but it doesn't have that conviction that people associate with that really high degree of confidence. And I think that we need to separate out the 2 to get more women into this industry. And finally, we talk a lot about the fact that women are over [ menses ] they're undersponsored. And also women are also promoted based on their performance, and they are not promoted based on their potential. And I think Stephen raised in his remarks something that's very interesting is -- and I think you talked about it with what you're doing over at S&P this idea is that we can give women some of the training before they go into that next position so that they actually when it comes to that time that they need to get promoted they are seen as having those skills already so that they -- instead of trying to change the people making the decision let's just prepare the women earlier. So in our situation in investment management, it could be a program such as the pathway to PM. And very focused on women because as I said, we've studied mainly gender diversity, but it could also focus on a broader degree of areas where we need to increase the diversity in the firm. And so you're looking at putting your high potentials to meet those goals into that program and move that forward. So that's the way we will be looking at doing it.

And I think a lot of women, a lot of women in investment management and in finance that I know will also, I think, in more personal conversations, discuss the cultural barriers within the workplace. Do you see cultural barriers in investment management, Katrina?

In terms of the cultural barriers, yes, there is -- definitely, there's those role culture out of facts that seems to be pervasive in finance. The typical one is the [ Patagonia robust ] even recently, people were talking about, we had an offsite and they were looking at the giveaway being a [indiscernible]. So I'm like, really? We can't be doing those types of things. We need to have gifts. And if you're going to give out something that is gender neutral and is applicable to everyone. And I think that they are the types of [ out of facts ] that we need to get out of the culture. We've talked about that confidence gap. The final thing when you're talking about culture, I think we've talked about the idea of having diversity and statistics definitely manage -- measure diversity. And Mona, you talked about this, what the statistics count measure is inclusion. And we can try and look at inclusion by you asking more detailed questions on a statistical front. I think we also was aimed at the fact that women are often placed in housekeeping roles versus being placed in frontline revenue-generating roles. So we can try and get to the answer a different way, but we need to make sure that the firms are inclusive, they're not just diverse. And I think that, that's something that comes from understanding the culture. You can try and get to it through the data, but it also comes from just having the conversation.

Completely agree. And although there's nothing wrong, of course, with [indiscernible] I actually own one myself. There's certainly more fun and excitement when there is diversity of cultures and initiatives. And -- okay, so Steve, a lot of -- something that a lot of folks might not know on the webinar is that you actually used to be my manager at State Street. And so I've known you a really long time. And I've always been very impressed with how well of an ally on these kinds of issues you are. And how can we bring more men into the conversation in a meaningful way? Any thoughts on that?

Sure. So I mean, first of all, I'd say that engaging men and/or engaging the majority in any kind of discussion around diversity with a minority group cannot be overstated in its importance. It's -- I was at an event actually yesterday. Vanguard held an internal event looking -- encouraging white men to be allies to women and minorities. And so a lot of what I'm going to say I'm just going to borrow straight from that event because no point reinventing the wheel. But a couple of -- just -- first, a couple of key benefits. The first thing is if you engage in the majority, you're definitely increasing the likelihood of success of any kind of initiative. If you want to achieve gender diversity much better to bring men into the conversation. You can also leverage their networks. These people are probably also buy inertia, the ones that have the longest tenure and the longest and the deepest networks within the organization. And a good way of doing this is by involving them in employee networks. And this is something that I've been a part of for a long time since before I joined Vanguard being involved in various different employee networks. And back in the day, this was -- I would see a lot of different employee networks that did different employees. They would just engage women in the women's network. They are just engage people color in the various other minority networks and leave the majority out of it, which was really a huge disadvantage. Really what you want to be doing is bringing man, bringing whiteman into the conversation and giving them an opportunity to learn to understand to hear from people about what their -- what's needed to actually educate them, give them the tools and resources so that they know how not to just sit there and be a passive supporter but to actively engage to actively challenge each other to do better and to advocate and provide the most useful forms of mentoring, of sponsorship and support for their colleagues. And that was one of the things that when I joined Vanguard, it was quite a relief to join. And pretty much the moment I joined, I was encouraged to join WILS, our women in leadership group. I was encouraged to join open and hold our various groups that focus on sexual orientation, diversity and ethnic diversity. So I think it's -- there's this just huge amounts of value and importance in getting people involved. And as you do that, you build education, you build understanding and you give people the opportunity to not just be passive, but to actively engage.

Yes. So we certainly need men in, in the conversation. Katrina, any thoughts on this from your side as well?

I think you highlighted such an important thing that men need to buy out our lines in this. They're not our enemies. We wrote the entire book. We conducted well over 100 interviews for this. And every single conversation we started with the premise that this is a book that's not about [ gleaning ] the men for the lack of diversity. We need to acknowledge where we are. We need to acknowledge that we do lack diversity in the industry. But let's all work together on moving this forward because we need to have men as our allies. We need to have men in this industry as our mentors and most importantly, one of the ways that we can get more gender diversity and more diversity generally is to have people as our sponsors and actively sponsoring those diverse candidates and pulling them up through the organization. And that's just such an important role. And I say people because it's not just management need to play that role in our industry, just given how there's 9 men for every one female, it's more likely to be a male, but it's people that can make the difference. And it's the people that drive the inclusion and it's the people that can make a difference at their organization.

Thank you for that, Katrina. And so our next question actually aligns with 3 or 4 that -- the questions that we've gotten from the audience. And it's actually my favorite question that we have here. So many folks within finance, passive, active, public-private, buy-side, sell-side are creating not only corporate DEI initiatives, but are integrating ESG strategies into their investments are integrating diversity equity and inclusion data and the way that they are looking at companies. So this is something that Mona and I work with investors to do on a regular basis within S&P Global Sustainable1 Group. Katrina, are you using corporate DEI data within your investment process?

It's an integral part of the investment process. Any investor who is not considering ESG factors I think, is ignoring the whole investment picture. You talked about measuring financial metrics such as cash flow, income statement, balance sheet, but increasingly, those metrics are being influenced by ESG concerns. And if you think about it, environmental is easy. If you're running a coal-fired power plant, you've got to terminate that power plant fairly quickly, maybe not so quickly now in Europe given everything that's happened, but you still need that -- those environmental getting to net zero influence the financial metrics. Social has another really interesting role to play because your social score will impact your ability to retain talent, and we're in a war for talent now. And that talent is what drives your business and drives your business forward. And if you have a staff shortage and you are able to find people to work in your office, you're not going to be able to generate revenue. So if you want a happy workforce, you want to well-paid and a fairly paid workforce and you want equitable treatment of that workforce. And then in governance, which is, I think, one of the areas where asset managements -- asset managers have traditionally played. We want to make sure that companies are doing the right thing in terms of shareholder rights and representation. We also look there in terms of the gender -- the board composition and the gender diversity and the racial diversity of the board. So there are various areas. And why do we look at some of these things on the governance side? Well, we think that good stewards of our capital, remembering the board represents the shareholders, a.k.a. ourselves as investors, we think that a better quality and higher quality board will be asking better questions and will help the company avoid making bad decisions, be it a bad acquisition or a bad geographic expansion or a bad product decision, for example.

And Mona, any thoughts on this from your side as well?

I mean, yes, absolutely, this -- I mean I think Katrina said it all, like this stuff is super important. And -- some other comments I did want to make, though, just if I may, just pivot slightly...

Yes, definitely.

Repeat what's already been said because I agree with much of that. It's really interesting culturally. We're obviously in the ESG space and thinking about your story Katrina at the very beginning about how you met with your friend at Central Park and you were looking at how the industry has still not changed. And actually, on that point, I was just reading -- and I know Stephanie will talk about. Is everybody here is familiar with that Morningstar study that was done that said that there were -- it was first on, I think, in 2019, and they redid it again recently and it showed that there were more -- in the U.K., there are more funds managed by men named Dave than they were run by women. And they took the most popular male name in almost all these different European countries. I'm currently calling in from Italy where the most common male name is Andrea, and over here, that's also one that for which there are more men -- more funds managed by folks called Andrea, which is a male name in Italy versus women in job. So clearly, this -- and that's still the case. They redo the study every year. So I was thinking like why is that? And actually, my experience has been somewhat different from your's Katrina in that. I came in -- I mean I'm an ESG person my entire career, climate finance first and then sustainable financing issue more broadly. And in this little niche, there's one little pocket of mainstream finance. Now I'm able to call it such. It wasn't a decade ago. But this was always a little tiny subset of the industry where I actually did feel there were a lot more women and other types of diverse individuals represented. What's really interesting, though, and I'd be very curious for Stephen and Katrina's thoughts on this, given your expertise on this topic. But as issue is becoming more and more mainstream, suddenly is getting less diverse. I'm noticing that there are now far more men going for this industry and I think this speaks to some of the things you cover in your book, for example, Katrina around like how men, historically or generally speaking, they tend to self-promote or self-nominate themselves a little bit more whether it'd be confidence or competence remains to be seen, but it will depend on the individual, of course. But certainly, I think this space was relegated to women in the past. And now it is getting fiercer and more competitive than ever before and that the diversity numbers are slipping. But I was curious because we know why gender diversity -- we know that diversity in general, especially gender adversity leads to outperformance. So why -- I'm just curious, sorry, Stephanie, I'm stealing your thunder a little bit. I don't mean to ask questions, but just I'm curious, why do we as a panel think that ESG now that it's become mainstream is suddenly getting less diverse which is counterintuitive?

Good question.

I think when we interviewed a lot of successful fund managers, you are absolutely correct, we found that a lot of them have succeeded in niche strategies, and that included ESG often. So they just found their niche. And often men had gravitated towards the large cap, the tech stocks. And also, we talk about the fact that women are often allocated like we call them the Brussels sprouts industry because when someone is serving up chocolate cake, who wants Brussels sprouts [ will pay ] someone serving a high-growth tech that's really exciting and someone else is serving up utilities, who wants to own the boring utility. And we think that, that just needs to be done at the DOI level you need take a very objective look at how you're allocating your resources and making sure that women are getting the opportunity to be involved in those kind of more exciting areas because those areas tend to lead to those portfolio manager job. So I think that the firms have something that they need to do there. One other thing I would say, though, everything I've been hearing here, and it's very encouraging to me are things that we can do now. And if things that we can do that are actionable today, and I think that, that's the key message that comes out of this, this problem can be addressed fairly quickly with the tools and the data that we have available to us today. And I think that, that's something that as you look at the lack of the decreasing diversity in ESG as it became more competitive, maybe we just need to take our lens and start quantifying that. And once we have quantified it, and we've had the data surrounding it, as Stephen said in his opening remarks, once you have the data, you can start to use the data.

And so...

That's before you can manage. So I have to say, though.

And just to tag on that, because I think this is a very good question from the audience here, and there are a few questions that are around this topic. And Steve, this will be for you. How do you get whitemen to see value in being an ally, just personal betterment?

There's definitely got to be more than just a personal betterment. So I think there's a couple of different things that you can do to engage people in this area to get them on board. I think the first one is hard data. So research like mine is incredibly important, and it has been featured multiple times internally at Vanguard as a way of underscoring, hey, we have goals around inclusion. And they're not just there for doing the right thing, they impact our bottom line performance, and we believe that they do. So here's a paper you can point to that shows the value that it adds. I think another piece is education and training. So training people on implicit buyers, helps them realize the impact and implications that they probably didn't realize happen when they make assumptions when they -- the sort of the micro aggressions that they may inadvertently introduce into conversations. And then I think I already mentioned about having goals, I think is important. If you make it part of people's expectation that as a manager, you have a responsibility to diverse. Don't give people the option to avoid it. If you genuinely believe that diversity adds value and that there's value in them being an ally, then make it abundantly clear as an organization that, that's what you would like to have. And I think just really giving people the opportunity to contribute in meaningful ways that are personalized. So for example, I do a lot of work in tech and data science. So giving me an opportunity to mentor people, men to women or men to minorities in technology is much more meaningful than just having me involved in some sort of generic conversation on it. So I think that getting the data out there and engaging people in as meaningful way as possible, I think, starts to tip that balance.

And so going kind of back to some of my questions here, Katrina, what makes it difficult for many women within their careers -- within every industry are necessary career gaps? And this can be especially dangerous for women in investment management who have gaps in their track record. So can you talk about how asset allocators could be more constructive perhaps in viewing a female's track record?

I've heard of various different ways of allocators addressing this, and I think it is the most progressive allocators that are very focused on making sure that they have a diverse cadre of investment teams managing their money. So I think that, that's very -- that there are a lot of people already doing this. But what they can do is adjust and make them more flexible definition of what is a track record versus the more fixed definitions that you often have going into the data feed. So it may be looking at their track record ex the time when they were out on the lead and just adding those track records together to create a comprehensive track record of outperformance. So I think if you're willing, there's always a way to do it, and I think that, that's one of the ways that can happen. The second area that we've talked about in terms of people leaving for maternity is that some of the programs we've seen at companies and the return to work programs. And I can tell you, I've seen a lot of talented women exit the workforce and then want to reenter and they haven't found those on ramps. And so the programs -- and the programs need to have scaffolding and that's very important. And when I talk about scaffolding, they need to have support around them because you don't want to take someone who's got 10 years of experience that they've been out of the workforce for 10 years and put them into a position where they don't have the necessary resources and the catch-up time. And if you can give them that scaffolding, you can give them the mental ship and you can give them the sponsorship, I think that's the other way that you can address some of these decisions that women take. And it's not always women that take those decisions, their parents who take those decisions to take a break from the workforce usually around the timing of the arrival of the child.

And then...

If I may. So this is not necessarily what the employers can do, but what the individuals could use. So I was hiring recently for a position, and I came across a resume that made me -- it just filled me with joy. I saw this woman who had taken time off for parenting several years, in fact. And she had that -- she had that on her resume and she had listed out all of the skills that she had to deploy because it is a job. It is a full-time job, and many of those skills are transferable in the workplace as well. And it just filled me with so much joy. And I just thought we could all do that, not that you need to necessarily just be a parent to explain a gap when there are so many different reasons, but those life lessons that you pick up along the way, tend to be so much more valuable and in terms of bringing those differences of experiences, and diverse opinions that we know that the research corporates actually do translate into better results for the company overall. So those differences and perspectives life experiences that actually add value. We as employers should recognize that if individuals applying for jobs, want to put that on their resume, I think it's a very valid choice.

I think it's a fantastic idea. And I also think that men should have the ability to do that as well. So kind of talking -- we've been talking more about the positive aspects here and what we can do. But diversity, equity and inclusion is not an easy initiative. And research actually shows Katrina, as you can speak to that when you add diversity to a non-diverse team, they can sometimes underperform. How and why does this happen?

Well, it's the additional cost of communicating and bringing into someone who maybe doesn't know the acronyms or the terms that you've known because you've been with this group and you will all stay at college together. And they just may not know these things and you need to take that additional time. And what happens also is often that minority is a minority in the room, and they don't speak up. I talked about the highest status person in the room office often kind of suppressing the alternative views and those alternative views often come from the diverse people in the room. And that's what that says is that once you get that the minority from being a salient minority to be an acknowledged or heard voice that's when the performance gap, the performance benefits come in, in terms of more innovation, better decision-making in our case and higher financial returns as a result. And it's around 30%. And so what you want to -- we're looking for is the teams that are close to crossing that 30% hurdle because they're going from that negative performance or that -- those costs at the back team is in the rearview mirror. And then you're starting to get the benefits of having that diverse team and having those diverse opinions in the room. But then I think you also going back to what we were talking about earlier, you don't just want to study the 30% number, you want to make sure that it's an inclusive team and that they're utilizing and getting the benefits of having that diversity.

Steve, do you have any additional comments or research that you've looked at before?

I think -- I mean, Katrina captured it pretty well. There's some robust amount of literature on the space. I mentioned a couple of these papers in the introduction and in the references in my paper. A lot of this comes from the organizational studies discipline. And that's exactly what Katrina said, there is a conflict in communication piece. And as long as you don't have a mechanism for resolving conflict on a team and that's a natural part of coming to a decision, you're going to underperform as a team. So this speaks both to the need for having mechanisms in place to actually allow that minority to have a voice at the table to have a true seat at the table as well as why some teams can underperform even though they've got a certain amount of diversity on the team.

Great. And so my next question here is active investment management does not have a good reputation for generating returns in excess of the market, unfortunately, after accounting for management fees, especially. So many of the institutional investors and the asset owners that I speak to are really shifting into low-fee passive strategies that seek to match the benchmark rather than make active bets on individual holdings. So you spoke about this in your book Katrina. Could the homogeneity of fund management in any way be related to for active fund management performance?

We're positive that's a potential reason. It's difficult to prove because we don't have the alternative hypotheses, which is we have a diverse comparative set that's outperformed the market. But I think the shift to passive, we do address in the book as well. And my views on that, if you -- if I give you a $100,000 until you go and buy a car, and you go and buy the cheapest car, that car is not going to have ABS breaking, it wouldn't have lane departure warnings. It wouldn't have a rearview camera or any of these new technologies that make it a safer and better drive. Now if you're in Florida, and the road is flat, and it's got no potholes and [ indeed straight ]. That's fine having a low-cost model. I mean it makes a lot of sense. But if you drive in New Jersey, which is where our firm is based and there are potholes, there's bad drivers, there are windy roads, there's lane closures, there's torrential rains like we had the other day. You kind of want some of those safety features to help you navigate those kind of -- a few of the more turbulence that out roads generate. And I think that, that's the benefit of active management. When things are great and it's easy, you kind of -- you will skew to the low-cost option. But when times are rough and this volatility and this turbulence in the market, I think having those additional safety features that you obviously pay up for makes a lot of sense.

I can just add to that, that -- I mean, first of all, the underperformance of active is [ after fees ]. So there's also a wide range of performance. So there are some funds that definitely outperform as active managers. There are some firms that consistently underperform. And so a lot of my colleagues in our investment strategy group are actively researching those characteristics and traits that allow us to identify active managers that are going to outperform. And that -- some of that is going to be about people that take a different view. They don't just follow the herd, but a lot of that is also around the characteristics of the firm, their team. And that's kind of where my research fits in. It fits into a broader research agenda around what are the characteristics of active managers that cause outperformance? What is the role that active has versus passive investing? And both are important, but you can't just take an average active fund and expect it to beat his benchmark, almost by definition, some are going to fall shy of that benchmark.

And perhaps, if I may, Stephanie, just chime in real quick. I would be remiss not to mention, of course, the fact that we at S&P have been running research on this for [indiscernible] for S&P indices versus active over which time frames we can see whether it's 10 years, 5 years, 1 year, almost over every time frame tested active managers by the lion's share underperform our benchmarks. And there were many mathematical reasons as to why that's the case, especially under certain market conditions. What we see is that 85% of active managers underperformed the benchmark and that's because there are a lot of different types of people in this space. But there is an opportunity only for the very best, only the very best have a chance of outperforming the benchmark. I personally, and this is not necessarily the view of S&P, but I personally don't think that the outperformance of passive versus active is explained by a difference in gender diversity, I may be wrong Katrina. But are you more likely to be in that top 15%, that very small slice that has those specialist skills that is capable of beating the benchmark, maybe diversity would be more conducive to that. But still that remains to be the case that having the benefits of diversification of -- especially in low volatility environment, it's very, very difficult for any active lane to beat the benchmark. Checkout our [indiscernible] reports if you want more on that. Maybe we should do a collaboration Katrina to see the difference and Stephen, of course, to see how gender plays it to that, that would be interesting.

Look -- and I just want to be clear. Our books is based on the notion women do not need to outperform men to justify having a seat at this table, we need to perform the same. And where the benefit comes in is through having mixed teams which are diverse. So it's the same thing as you don't want to have all men, you don't want to have all women on a team. But we were very, very clear upfront in the book and in everything that we did. The book is not premised on the idea that women are superior investors on a stand-alone basis. It is that a mixed gender and diversed team which it covers diversity, as we've said, across multiple lenses will make better investment decisions, which will lead to that being in the 15% -- the top 15% that you identified.

And thank you for touching on that, Katrina because we had a number of questions from the audience on is it necessary for women to outperform just to be represented. But going on here, a simple question then becomes, how can we better promote gender diversity, Katrina?

There are so many things that we can do. We could be here all day. So we spent the last 1/3 of the book giving new solutions, and I believe we only have 3 minutes. So -- and you couldn't speed read that. But we do have a money manifesto in the end. There are so many things you can do. The one thing that I do encourage people, women, in particular, to do, is if you were asked to go back and talk to your undergraduate, undergraduate college class, clearly say yes. We talked about you can't be what you can't see. And it is as simple as having that onetime interaction with a successful women in a career that they're becoming -- that they're interested in that can actually change the agenda and change those recruiting statistics. And as I said, if we can start changing the recruiting, then we can start working on the other parts of that flywheel. So if I had one call to action as we end this, it is, please say yes, when your old finest professor calls you up and ask you to present on the panel.

Fantastic. And just kind of getting to the very end here. So I hate to skip around and not answer all of these really phenomenal questions that have come in. But Steve, just to close this out, what should we care more about when evaluating fund performance?

Well, I think the key here is understanding the characteristics that contribute to performance. So we talked to the -- most of this webinar was about gender diversity. But to harken back to the first question that came in. This is not just about gender diversity, this is not saying that gender diversity is the only dimension by which you should measure performance, but really understanding the importance that gender diversity and other forms of diversity form in creating good strong teams that in turn create good, strong investments. So there's a lot of more research that can be done in this space to really understand how these things intersect. But really start by understanding who and what and how these firms are adding value and really being able to put concrete date -- just by putting concrete data around this will going to help ourselves to be able to speak better to what actually does drive performance.

Thank you, Steve. So that's really all the time we have today. Unfortunately, I wish we could have gotten to more. If you have any additional questions, please use the widget. We'll try to get back to you and answer them. There will be recording sent to you afterwards, and we'd love to hear any feedback from the webinar survey form that will be routed to you. But thank you for joining us.

Thank you.