At AMP Capital, we have long understood there are substantial benefits from looking beyond the financial statements when valuing a company. We believe environmental, social and governance (ESG) factors can have a greater impact on an asset’s value than tangible items such as property, plant and equipment.
Within that framework, we believe diversity is one of the key intangible issues that investors must consider. Not only is it right for us to factor diversity into our thinking, it’s also smart and necessary. Our view is that company value is driven by the people within the business, so teams that are happy, engaged and cognitively diverse help support their firm’s valuation.
Building diverse teams is one way to generate different ideas to take the business forward. It is also a way to address the complex problems the world is facing; a way of generating different ideas to solve long-standing problems. Diversity of thought allows businesses to widen the aperture of their lens so they can truly consider different ideas and ensure the firm is not vision-impaired.
When discussing diversity, the first thing that comes to mind for many is gender, and while diversity isn’t just about gender, it’s a good place to start. Research shows when women are part of decision-making groups, they have a greater emphasis on ethics, risk and reputation management, while men are more tactical and factual1. Additionally, statistics show companies perform better when there are a higher percentage of women in senior leadership positions2.
Discussions around gender diversity have been part of the corporate landscape for decades, so it’s easy to be complacent about this subject. In fact, we’re unlikely to take action personally unless one of a number of different situations occurs: you experience prejudice, you confront your biases or you observe the effect of discrimination in the workplace on a family member.
The personal perspective notwithstanding, there are many opportunities for companies to explore diversity in novel ways. This starts with examining their current position, followed by establishing, implementing and measuring the success of the diversity policies the business implements. Ultimately, the goal is to reach a position at which women and minorities receive unconditional acceptance in the company.
While in the past diversity may have been considered a problem to solve, flipping this and viewing it as an opportunity can produce excellent results for businesses and their investors. Companies that do this are expected to trade at a premium, delivering benefits for their staff, shareholders and sector.
This article has been prepared to provide general information and does not constitute 'financial advice' for the purposes of the Financial Advisors Act 2008 (Act). An individual investor should, before making any investment decisions, consider the information available in the relevant Product Disclosure Statement and seek professional advice. While every care has been taken in the preparation of this document, AMP Capital Investors (New Zealand) Limited and the AMP Group (together, 'AMP') make no guarantee that the information supplied is accurate, complete or timely and do not make any warranties or representations in respect of results gained from its use. The information is not intended to infer that current or past returns are indicative of future returns. The views expressed are those of the author and do not necessarily reflect those of AMP. These views are subject to change depending on market conditions and other factors.