There is no pipeline problem, diverse boards outperform, but the gender pay gap persists
Welcome to Nº12 of In The Money, your weekly newsletter on all the financy things. This week we have seen investment firms, as well as corporations, pledge to increase diversity among their leadership and boards. We also got further evidence that diverse boards outperform. Despite the recent efforts to increase diversity, the gender pay gap persists. In this edition, we will also take a look at what Bitcoin actually is and why it is currently valued at over $50,000. We also explore if there is life on Mars, and many other exciting things. I hope you enjoy this week’s edition.
There is no pipeline problem 📣
Historically, the tech industry has grappled with a lack of diversity among employees, executives, venture-backed founders, venture capital firms, and board members. Yet despite recent efforts to increase diversity, the industry still remains predominantly white and male. Over the years, many have argued that the lack of diversity is caused by the so-called pipeline problem, which argues that the lack of diversity in tech is due to there not being enough qualified talent from diverse backgrounds.
In an interview with TechCrunch, Uber’s Chief Diversity Officer Bo Young Lee told that today, there is well-established data that proves the lack of diversity in tech cannot be attributed to a pipeline problem. “If we want to claim that it’s a pipeline issue, we would first have to claim that we’ve hired what is available in the pipeline. It’s not a pipeline issue as much as it is a recruiting process challenge,” she said.
Still the notion of the pipeline problem at least partly remains in the public psyche, despite all the evidence showing there is not one. But there are a couple of dynamics at play. According to Courri Brady, director at diversity, equity, and inclusion consulting firm Paradigm, one of those dynamics relates to recruiting processes, which are relatively fixed inside tech companies. If companies are convinced only certain schools, programs, or other companies are the only places that produce good talent, and those people are not diverse, then those issues are going to perpetuate themselves.
“Credentialing is a form of gatekeeping and protecting who has access to power and who doesn’t. There’s this term that I think was coined a few years ago about how Silicon Valley tech companies are not meritocracies, but ‘mirrortocracies,’ so you’re hiring people who have similar credentials to you, had the same sort of schooling, etcetera. But that doesn’t necessarily mean they’re more qualified. We know that all sorts of diversity often yields better work and better outcomes in a variety of situations, but focusing on certain types of quotes, qualifications, and credentials, doesn’t reflect that.”
Put more women on boards 🚨
Norway’s sovereign wealth fund, which is the world’s largest, at $1.3 trillion is using its power and influence to push the companies it invests in to put more women on their boards. In the paper released on Monday, it said that the companies the fund invests in should consider setting targets for gender diversity where either gender has less than 30% representation on their boards and to report on progress.
As one of the world’s largest investors, the fund holds stakes in 9,202 companies across 74 countries, owning 1.5% of all listed stocks. The fund has set the pace on a number of issues regarding environmental, social, and corporate governance (ESG).
“We may phrase it politely, but it is pretty clear what we think. We really think diversity creates better thinking and better creativity and better business, really. The more diverse the group of people who sit together, the more creative solutions you get and so the better business. You get better innovations, better solutions. It is just good.” Chief Executive Nicolai Tangen said in an interview.
“What we want to see is a better representation of women on the boards. Diversity is good for the board because it brings better perspective, it is better for decision-making, and increasingly important for the legitimacy of companies. It (a lack of female representation) could also be a red flag, that a company does not have a good process to recruit the best director,” said Carine Smith Ihenacho, the fund’s chief governance, and compliance officer.
“But what is relevant for all countries is that women, in general, are underrepresented and that is why we have a target (on gender). Globally, 17% of company boards do not have a single woman” added Smith Ihenacho.
Most other big institutional investors have a general request for boards to be diverse, and a number are increasingly starting to oppose boards they consider not diverse enough, but they have typically not set any specific targets for female representation.
Also, in October 2020 the $32 billion Yale Endowment’s Chief Investment Officer David Swensen publicly instructed the firms who manage the University’s endowment to diversify their ranks, or risk Yale pulling its money from them. You can read the letter here. We are starting to see more and more investors focusing on diversity issues, see further below for news from The Carlyle Group.
The gender Pay Gap persists 🤦🏻♀️
A new study of corporate filings by Morningstar found that even women who make it to the top ranks of US corporations face a persistent pay gap compared with men in similar leadership roles. Among companies in the Russell 3000 index (which covers most of the investable US stock market, the 3,000 largest US companies by market capitalization), the highest-paid women earned 84.6 cents for every dollar earned by male counterparts in 2019, up from 81.5 cents in 2015.
The persistent gender pay gap reflects a lack of top female leaders, and that those in place today often hold lower-paid posts like heads of marketing or human resources. To change, firms must increase women at all levels to maintain a diverse pool for promotions. Most recently, women held only 12% of the ‘named executive officer’ positions, up from 9% in 2015. At companies in the sample, 47% had at least one woman in their top ranks in 2019, compared to 35% in 2015.
Gender and race-based pay differences have received increasing attention amid social justice protests and the economic impact of the pandemic. A recent report from the National Women’s Law Center found since the start of the pandemic 2.3 million women have left the US workforce. Women’s participation rate being at 57%, the lowest since 1988.
Morningstar’s report author Jackie Cook pointed out that a number of high-profile companies have no women listed among their top-paid executives as of 2020. Some of these companies include Amazon which is the third-most valuable US company, and State Street Corp, the asset manager known for its “Fearless Girl” campaign.
Diverse boards outperform 👏
Global investment firm The Carlyle Group announced on Wednesday that it had secured the largest ESG-linked private equity credit facility in the US for $4.1 billion. It is the first credit facility to focus exclusively on advancing board diversity. The firm structured the revolving credit facility for its Americas corporate private equity funds, with the price of debt directly tied to the firm’s previously set goal of having 30% diverse directors on the boards of its controlled companies within two years of ownership.
Carlyle said in its announcement that over the past three years, the company has seen that the average earnings growth of its portfolio companies with two or more diverse board members has been approximately 12% greater per year than companies that lack diversity. This result underscores the correlation of board diversity with strong financial decisions and performance.
McDiversity 🍟
McDonald's looks to improve diversity at the company and has set a goal of having an equal number of men and women in leadership roles by 2030. The fast-food chain also told it would work to increase minority representation in the firm's US senior ranks from 29% to 35% over the next four years. Executive pay will be tied to meeting these targets.
For example, under the new rules, McDonald’s CEO Chris Kempczinski stands to lose 15% of his approximately $2.25 million annual bonus if he fails to meet goals to increase the portion of women and Blacks, Hispanics, Asians, and other minorities in senior leadership positions.
According to company data, Black people make up 10% of McDonald’s senior-level management, which is higher than the 7% as reported by other restaurant chains that also disclosed such data to the federal government in 2018.
The effort comes after claims of racial discrimination from black franchisees and executives in the US. Employees have also accused the firm of fostering systemic sexual harassment, but McDonald's has disputed the allegations.
Twitter commits too 🐦
On Thursday, Twitter committed to increasing the diversity among its leadership. It has set a goal of having at least a quarter of its executives be underrepresented minorities and women by 2025. The goal is a part of the 25x25 pledge, an initiative by Silicon Valley Leadership Group to increase diversity among companies in the San Francisco Bay Area.
Approximately 13% of Twitter’s current leadership employees are Black, Latinx, Indigenous or multiracial. While women make up 38.2% of the company’s global leadership. The company stated it is committing to having women make up at least 41% of its global leadership roles and having at least 25% of its US executives be underrepresented minorities.
Bitcoin surpasses 50K 📈
On Tuesday Bitcoin’s price broke above $50,000 for the first time in history. The world’s largest cryptocurrency by market value increased over 3% to an all-time high of $50,487. It later fell below the mark, trading 0.6% higher at a price of $48,952. On Wednesday, Bitcoin hit surpassed $52,000. Other cryptocurrencies are riding on the rally too, the world’s second-largest cryptocurrency, Etherum hit an all-time high on Thursday of $1,918.52. Etherum has seen a price rise of 160% year-to-date compared to Bitcoin’s 78% surge in the same period.
Bitcoin has gotten a boost from news of large firms like Tesla and Mastercard showing support for crypto. In last week’s newsletter, you could read that Tesla revealed it had bought $1.5 billion worth of bitcoin and plans to accept it as payment for its products. Tesla’s use of cash on its balance sheet to buy bitcoin sparked speculation over whether other major companies would follow suit.
While the cryptocurrency has many proponents, others remain skeptical. JPMorgan strategists said that, unless Bitcoin’s volatility starts to ebb, its current price “looks unsustainable.” Bitcoin and other cryptocurrencies have gained a reputation for their extreme price swings.
OK, so what exactly is Bitcoin and why is it valued at $50,000?
Bitcoin is a cryptocurrency launched in early 2009 by its pseudonymous creator Satoshi Nakamoto (you can read the original White Paper here). Bitcoin is a decentralized, peer-to-peer digital currency. Peer-to-peer means that no central authority, such as a central bank, issues new money or tracks transactions. Instead, these tasks are managed and verified collectively by network nodes through cryptography and recorded in a public distributed ledger called a blockchain. Bitcoins are created from a process known as mining and only 21 million Bitcoins will ever be created. Bitcoin is the largest cryptocurrency measured by market capitalization and the amount of data stored on its blockchain.
Why is it valuable? Bitcoin’s value lies in its legacy systems because of the monetary autonomy it brings to its users. Ultimately, Bitcoin seeks to address the root problem with conventional currency. According to BitcoinWiki, this refers to the trust that is required to make conventional currencies work. “Not that justified trust is a bad thing, but trust makes systems brittle, opaque, and costly to operate. Trust failures result in systemic collapses, trust curation creates inequality and monopoly lock-in, and naturally arising trust choke-points can be abused to deny access to due process. Through the use of cryptographic proof, decentralized networks, and open-source software Bitcoin minimizes and replaces these trust costs.”
Essentially Bitcoin is anonymous, borderless, fast, and trading is available 24 hours a day, every day of the year. Furthermore, there are no storage costs, no counterparty risk, and can be under divided possession. Please note that I am not giving any investment recommendations in this newsletter. This newsletter is for informational purposes only. I’m highlighting interesting news and trying to disentangle financial terms. Please do remember that investing in any asset is risky.
Here’s Bitcoin explained by a 3-year-old:
Life on Mars 🚀
Elon Musk’s space manufacturer and transportation company SpaceX has completed an equity funding of $850 million. The company’s valuation skyrocketed to about $74 billion. SpaceX raised the new funds at $419.99 a share, which is just a cent below the $420 price CEO, Elon Musk made infamous in 2018 when he declared he had “funding secured” to take Tesla private. The latest raise represents a jump of about 60% in the company’s valuation from its previous round in August 2020, when SpaceX raised around $2 billion at a $46 billion valuation.
The influx of cash comes as SpaceX simultaneously develops two capital-intensive projects. One being, Starlink its ambitious project to build an interconnected internet network with thousands of satellites, designed to deliver high-speed internet to consumers anywhere on the planet. It is estimated that Starlink will cost about $10 billion or more to build. But the company believes that the network has the potential to bring in as much as $30 billion a year, which is more than 10 times the annual revenue of its existing rocket business. To date, SpaceX has launched more than 1,000 satellites, while beginning to roll out a public beta to customers in the US, Canada, and the UK. Prospective users can preorder Starlink service for $99. In a Federal Communications Commission filing last week the company disclosed that Starlink has over 10,000 users in the US and abroad, in just over three months since the public beta began.
Musk also reiterated that the plan is to eventually spin off Starlink and take it public. He said that Starlink “needs to pass through a deep chasm of negative cash flow over the next year or so. Once we can predict cash flow reasonably well, Starlink will IPO.”
SpaceX’s Starship rocket represents its other ambitious endeavor. The company continues to build and test prototypes in Boca Chica, Texas. The company has successfully launched multiple Starship prototypes and landed them safely after short flights. However, two of its most recent high-altitude flights, despite passing several development milestones, have exploded during attempted landings.
If you want to learn more on SpaceX, I highly recommend listening to the most recent 3,5 hours long, Joe Rogan podcast episode with Elon Musk. Musk talked about space travel, inhabiting Mars (within 5 years), aliens, and numerous other crazy, out-of-this-world things. Also, in a previous newsletter, I featured Gwynne Shotwell, SpaceX COO as the Woman of the Week.
Also, on Thursday NASA successfully landed its fifth robotic rover, Perseverance, on the surface of Mars after its six-month voyage from Earth.
SPAC boom reaches Europe 💥
I’ve covered SPACs and what they are in this newsletter before and now the SPAC boom has officially arrived in Europe. With venture capital firm Lakestar founder Klaus Hommels (whose investments include the likes of Facebook, Skype, and Revolut) is launching a blank-check firm aimed at snapping up a late-stage tech company in Europe. Hommels is looking to find up to €275 million for his SPAC, which is called Lakestar SPAC I SE. It is expected to list in Frankfurt on Monday under the ticker LRSW.
SPACs (special purpose acquisition companies) are shell companies that are created with the sole purpose of raising funds to acquire an existing private company. In that way, the target firm can bypass the traditional initial public offering process.
Facebook unfriends Australia 🙅♀️
Facebook has defied Australia’s drafted new media law to make Big Tech companies (online platforms like Google and Facebook) pay for news by banning the sharing of content on its platform in the country, making this the most far-reaching restrictions it has ever placed on publishers in any part of the world.
Facebook banned numerous non-news pages in Australia in its attempt to remove news content from its platform. Dozens of Facebook pages belonging to charities, small businesses, public services, and governments were all removed, raising concerns that people could miss out on vital information. For example, this decision prevented the public from accessing critical information on government health and emergency service sites, provoking a backlash from Australian ministers and users. In a move that has caused some amusement, Facebook also blocked its own page in Australia.
This Week in Women Leaders 👩💼
The Finn in me just has to brag about this. Prime Minister of Finland, Sanna Marin was listed on Time Magazine’s 100 Next list and is one of the ten people featured on the magazine’s cover.
Former investor at Andreessen Horowitz, Li Jin, raised her own fund Atelier Ventures to invest in the passion economy.
In a speech at the United Nations, PepsiCo CEO Indra Nooyi stated that no economy can succeed without tapping into the incredible potential of women. She also called the coming decades “the decades of women” as economies move into a new phase of growth.
Cathie Wood, founder, and CEO of Ark Invest (previously featured as Woman of the Week in ITM) says she is still bullish on Tesla and continues to buy shares in the carmaker. Ark Invest’s flagship fund, Ark Innovation (ticker ARKK), has raked $5.3 billion in inflows this year alone. The ETF (exchange-traded fund) is up nearly 20% this year after an impressive near 150% gain in 2020. Tesla is the largest holding in Ark Innovation, making up 8.5% of the ETF’s total weight.
“I think the most important is that we have people from different genders, different generations and different backgrounds at the decision-making table” - Sanna Marin, Prime Minister of Finland
Woman of the Week
Sallie Krawcheck
I want to begin by saying that personally for me, starting out my career in banking, Sallie has been an incredible role model to look up to in the industry. With this, I’m super excited to feature her as the Woman of the Week.
Sallie Krawcheck is the CEO and co-founder of Ellevest, the digital financial advisor for women, which she launched in 2016.
Krawcheck grew up in Charleston, South Carolina, where she attended Porter-Gaud School. While in high school, she was a local track star, and in 1983, as a high school senior, she was honored as a South Carolina Presidential Scholar. She received a Morehead Scholarship to the University of North Carolina at Chapel Hill where she received a degree in journalism. In 1992, she obtained an MBA from Columbia Business School.
Krawcheck began her business career as an equity analyst covering the Wall Street firms, rising to become Director of Research and then chairman and CEO of sell-side research firm Sanford C. Bernstein & Co.. She had a reputation for impartial advice and her decision to take Bernstein out of the lucrative, but conflicted underwriting business, caused Fortune Magazine to call her “The Last Honest Analyst”.
Krawcheck was named CEO of Citigroup's Smith Barney unit, for which she was named to Time's 2002 list of "Global Influentials" and Fortune’s Most Influential Person Under the Age of 40. She was appointed Chief Financial Officer for Citigroup in 2004. Later, in 2007, she was named CEO of Citi’s wealth management business. Krawcheck left Citi in September 2008, after months of tension with CEO Vikram Pandit, due to the fact that Krawcheck argued for Citi to reimburse clients for defective investments distributed by Citi wealth management's brokers and bankers.
Following the acquisition of Merrill Lynch in 2009, Bank of America hired Krawcheck to head the new division. Krawcheck led the unit to $3.1 billion in profits during her two years as president of the wealth management unit. In the aftermath of the financial crisis, in the second quarter of 2011, Krawcheck’s division increased net income by 54 percent, from $329 million to $506 million, while Bank of America posted an overall $8.8 billion loss.
Krawcheck's position at Merrill was eliminated by the firm's new chief executive, Brian Moynihan, as part of a restructuring, and Krawcheck left Bank of America in September 2011.
“Nothing bad happens when women are in positions of power”
In 2013, Krawcheck acquired 85 Broads Unlimited LLC (which now operates as Ellevate Network) and is now the Chair of the organization. Krawcheck is the co-founder and CEO of Ellevest, a digital investment platform for women. Ellevest's goal is to work to close the gender investing gap in the U.S. by redefining investing for women.
Krawcheck has been on Reid Hoffman’s Masters of Scale podcast, writes articles regularly on Ellevest.
Thank you so much for reading this week’s newsletter. I would love to hear your feedback and please share this with a few friends you think would find this interesting. Have a lovely weekend 💜
I’m Marianne, an early-stage VC based in Stockholm. You can reach me by replying to this email, or find me on Twitter or LinkedIn.