16 Oct. 2014 | Comments (0)
Every June, the lesbian, gay, bisexual, and transgender (LGBT) community celebrates Pride Month. In cities around the country, members and allies of the LGBT community come together to recognize progress in advancing the LGBT rights movement. In recent years, one ally has emerged as an increasingly visible Pride Month participant: corporate America. More and more, sponsor kiosks line parade routes. Company flags fly next to Pride flags. Corporate logos cover t-shirts.
The business rationale is clear enough: The LGBT community in the United States represents almost $800 billion in buying power. But what about the employer rationale? Does the establishment of policies and practices that attract and embrace LGBT staff bolster corporate performance? Do voluntary outlays for LGBT employees (such as health coverage for domestic partners) have an impact on financial performance? These are questions with historically few answers—and one that we and several colleagues at Credit Suisse have been exploring for three years
Our work started casually at a lunch we had in 2011 with Doug Nieters and Stephen Paine, two other members of Credit Suisse’s Open Network, our firm’s professional network for LGBT employees. We had convened during the fall recruiting season to discuss how to make the most of Credit Suisse’s pro-LGBT policies in our on-campus-recruiting efforts. As we talked, we began to wonder: Is the case for pro-LGBT employment policy an HR-driven argument alone? We debated the point. We talked through other examples of pro-LGBT employers. And then, being bankers, we thought: What if we could answer the question quantitatively? Could we design a data-driven instrument – an index – to evaluate the link between pro-LGBT policies and corporate performance? (And, in the interests of full disclosure, we also thought: Could we find an opportunity to build a fund of high-performing companies with progressive LGBT policies in which the public could invest?)
Again, being bankers, the obvious first step was due diligence. We worked with the Williams Institute of UCLA to scan existing academic research on the link between LGBT policy and corporate performance. The Williams Institute found a number of studies that, taken together, showed a positive correlation between inclusive policies and the health outcomes, job commitment, and job satisfaction of a corporation’s employees. These studies also found a correlation, but a less conclusive one, with increased worker creativity and innovation, improved organizational-citizenship behaviors, and – most on-target for us – improved stock prices. The fact that the research existed was encouraging, but it struck us as qualitative. We were intent on gathering more quantitative data.
At the same time, we began working with the Human Rights Campaign, which in 2002 had created the Corporate Equality Index (CEI), the national benchmarking tool on corporate policies and practices pertinent to lesbian, gay, bisexual, and transgender employees. The CEI scores Fortune 500 companies and the 200 largest U.S. law firms from 0 to 100 based on the inclusiveness of their policies and practices toward the LGBT community. HRC’s scoring procedure is straightforward: Points are awarded on a set of standard criteria, based on information that companies themselves provide. In summary, those criteria are:
Equal employment opportunity policy, including:
- Providing employment protections on the basis of sexual orientation (+15 pts)
- Providing employment protections on the basis of gender identity or expression (+15 pts)
Employment benefits, including:
- Equivalent spousal and domestic partner benefits (such as parity of health coverage between different-sex and same-sex partners or spouses) (+25 pts)
- Transgender-inclusive health coverage (hormone therapy, for instance, or surgical procedures) (+10 pts)
Organizational competency in LGBT inclusion (such as providing diversity-training programs, an employee resource group, or a diversity council that includes LGBT issues) (+20 pts)
Public engagement with the external LGBT community (recruitment efforts, demonstrated public support for LGBT equality under the law, and so on) (+15 pts)
Responsible citizenship (possible minus 25 pts for a large-scale official or public anti-LGBT blemish on recent records, such as revoking inclusive LGBT policies or practices, or opposing shareholder resolutions reasonably aimed at encouraging the adoption of inclusive workplace policies).
Since its launch, a central purpose of the CEI has been to influence consumer spending by helping consumers understand whether the companies they patronize are LGBT-friendly.But as we parsed the data, we saw that we could use the CEI to help us measure the equity performance of companies with LGBT-supportive policies.
Pursuing this idea, we secured the right to use the CEI as the basis for the Credit Suisse LGBT Equality Index, and after three years of work, we launched it in October 2013. It is a float-adjusted, market capitalization-weighted index that uses the Standard & Poor’s (S&P) 1,500 as a starting universe, then applies a minimum score of 80 on the CEI as a second factor for inclusion. The Index’s basic structure is modeled after the S&P 500, to ensure that the Index viably compares to well-known equity indices. The Credit Suisse Equality Portfolio, which also launched in October 2013, is the only investable instrument associated with the Index. The Portfolio allows investors to invest directly in a separately managed account of individual company stocks with progressive LGBT policies. As of today, 225 companies are represented in the Index, across all 10 S&P industry sectors, and there are approximately 30 companies in the Portfolio.
It’s been less than a year since the Index’s launch, but we can report one finding: Its returns are 98.8% correlated to the daily returns of the S&P 500, over the period since the CEI’s launch. That is, the daily returns of the Index have been slightly higher or slightly lower than the S&P 500, but on average, have not been more than 1.2% different on a daily basis.
It is a single data point. And it may not sound like much, at first glance. But in essence, it indicates quantitatively that an employer’s stance on LGBT issues does not make a material difference in its stock price, even in today’s economy. It shows that the costs associated with instituting LGBT practices and policies place no drag on equity performance.
We have an early answer to the questions we first posed. But we have more questions to explore: Does being a pro-LGBT employer actually improve a company’s equity performance? Does performance vary by sector? If so, why? As time goes on, and as we are able to analyze more data, we intend to find answers to these questions, too.
For now, we are happy to have resolved – at least in part – the debate we had at lunch three years ago. And as we think about Pride Month events that have happened over the past few weeks, we know why some companies flying their flags have much to boast about.
This blog first appeared on Harvard Business Review on 7/02/2014.