One out of every three women on the planet, roughly 1.3 billion fellow humans, will experience gender-based violence (GBV) in their lifetime.
Let that sink in for a bit.
There is a very good chance that you know one of these women. She is a member of your family, a classmate, a colleague, a Facebook or LinkedIn friend, an acquaintance. Indeed, odds are quite high you know more than a few women whose lives have been forever damaged by GBV. And to be fair, men are also targets, though at dramatically lower rates.
Real Violence, Real Damage, Real Costs
Gender-based violence can have significant, lifelong consequences: pregnancy/abortion, physical disfigurement, disease, impaired bodily functions and even death. Emotional consequences are equally significant––depression, fear, shame, anxiety, and rage––and never completely heal. Survivors can also suffer various forms of self-harm––including eating disorders/ weight gain, suicide, and any of a litany of addictions—to escape this soul-crushing detritus.
Research shows that the fully-loaded economic costs of GBV on national economic growth would seem to be “material” in financial terms. The Criterion Institute, a leader in researching ways to use finance to combat GBV, estimates GBV costs the world $1.5 trillion per year. A study done by The European Institute for Gender Equality concluded the societal costs of GBV in the United Kingdom totaled more than €42 billion per year or roughly two percent of U.K. GDP. Extending these numbers to the rest of the European Union, GBV costs the region over €334 billion annually. To put these numbers in a scaled perspective, Great Britain’s population is less than half of those of Russia and Japan, roughly a fifth of the States, and less than five percent of the populations of China and India. Please extrapolate.
Many GBV victims will leave their employer, particularly if the GBV is work-related. When GBV victims leave, a downward cash flow spiral often begins as, per a CareerBuilder survey, 78% of the American workforce lives paycheck to paycheck. GBV’s cascading effects on all aspects of survivors’ lives, including debt defaults, can be profound. In fact, some banks and lenders have started to offer services such as delayed payments to survivors.
While it is difficult to calculate exactly how these costs affect economic growth, the sheer size and scale of these hidden liabilities would seem to indicate that GBV imposes a notable drag on national, regional, and global performances. Postulating that reducing and eliminating these costs would not have measurable, significant impacts on growth would seem to be asinine, if not myopic.
In the corporate sphere, the estimated yearly cost of GBV in an “average” Fortune 500 firm has been pegged at $6 million by the International Center for Research on Women. This includes replacement costs, which run upwards of 1 to 2 times fully-loaded yearly salary in the U.S. Bear in mind, this is for an average firm, using current reporting statistics, which are arguably incomplete. GBV costs would seem to be considerably higher in sectors where men firmly constitute the dominant culture, or where a firm has substantial operations in geographies prone to GBV.
Survivors’ contributions to top-line growth in terms of productivity, innovation, and engagement can take significant hits. Bottom line wounds, in terms of both potentially prolonged physical and mental health care outlays, and absenteeism are also palpably felt. The U.S.-based National Coalition Against Domestic Violence estimates that eight million days of no-shows, equal to roughly 32,000 jobs, are lost in the U.S. per year due to intimate partner violence alone.
When discrimination and harassment are included in GBV calculations, the numbers expand considerably. In 2016, roughly 25,000 gender-related harassment and discrimination lawsuits were brought to the EEOC’s attention in the U.S., costing an estimated $1.6 billion to settle. Nondisclosure agreements likely mask the real cost of settling these matters. Fox News paid out over $100 million in 2017 alone and those figures were hidden until victims decided to speak out. Additionally, the era of forced arbitration and confidentiality agreements may be on a downward trend, the end result being higher payouts. Finally, corporations may no longer deduct settlement costs due to changes in the tax code. Ignoring GBV and related discrimination is likely to become considerably more expensive.
The “Weinstein Clause”, which has been making appearances recently in some M&A term sheets, provides one means of calculating costs associated with GBV. In addition to settlement expenses, it also incorporates costs associated with dinged brand/customer/employee loyalty, also known as “headline,” “reputation,” or “controversy” risks. Under this clause, the acquired firm is required to set aside up to 10% of the transaction to settle gender-related incidents that may be filed post-close. A 10% haircut on an equity payout to both investors and key executives should raise some eyebrows.
It remains to be seen if exercising this valuation claw back provision might also trigger a renegotiation of the terms of any potential financing, specifically debt, of the deal. These events are usually symptoms of a much more pervasive culture that may be hiding other, potentially even more costly land mines. It will also be interesting to track the stock price/value destruction of the acquiring firm should the clause be triggered.
As more data are collected, the hypothesis that corporate culture causally impacts beta, and thus discount rates, as referenced in research by the Sustainability Accounting Standards Board, should receive more analysis. In fact, this observation is being supported by a coalition of Asset Owners with $3 trillion AUM in a petition to the SEC to make disclosures of human capital management data mandatory to investors as this data would seem to be material.
Cost of Capital: The Interplay Among Legislation, Government, and Employers
So, how does all of this impact the costs of debt and equity financing? Let’s start at the nation-state level. If a country lacks appropriate legislation, there would seem to be a higher probability of incidents of GBV and its downstream economic lacerations. When properly factored into analyses, these costs will hurt credit ratings—probably in the Institutional Strength category—and thus increase borrowing rates.
For example, both India and Japan (where #MeToo has been altered to #WeToo for cultural reasons), with a combined headcount of roughly 600 million women, lack spousal abuse legislation that categorizes the violence as a crime. Russia recently rolled back gender-protections. These countries sovereign debt issuances should be examined in the light of these very real impacts to economic growth.
Saudi Arabia’s desire to behead a women’s rights activist, not to mention its restrictions on how women can contribute to its economy, should trigger alarm bells similar to the reactions of the debt markets to the recent Khashoggi murder. A $500 million bond offering was withdrawn due to increased risk perceived by the capital markets, and consequent higher rates, because of the Saudi government’s sanctioning of the crime.
This scenario can also be extended to state and even municipal borrowing functions. Combining the degree of local legislation with levels of education and income by gender, the types of available work, and incidents of GBV should affect risks and rates. Untested rape kits, presently estimated in the hundreds of thousands in the U.S., and their implicit prolonging of the status quo, could also serve as indicators of risk.
Governments, from federal levels down, may want to ask themselves how much their current and future debt payments will be lowered by implementing, and properly enforcing such legislation. From a political perspective, roughly half the population would probably endorse these initiatives from the get-go.
Further, as domestic and global employers become wiser to the financial risks of GBV, governments may find themselves not only paying more for their debt, but increasingly having more difficulties attracting investment, and talent.
Ohio and Kentucky provide a good example. Their current initiatives to ban abortions at six weeks could be taken as an indicator of its overall posture toward gender equality. It will be interesting to see if women, specifically high-earning, college-educated white-collar workers, and entrepreneurs, rethink their state of domicile, should this legislation become law. Over time, the impacts on property values, income multipliers, and tax collections––and thus riskiness of bond payments––could be significant.
Concurrently, businesses in the state may have a more difficult time attracting and retaining these accretive workers, which could cause a rethinking of location strategy with related economic impacts. With scale, these factors would seem to increase risk of default of state and municipal debt payments and increase rates for new borrowings. Salesforce’s successful gambit of threatening to scuttle plans for a $40 million call center in neighboring Indiana if a “Religious Freedom” act that discriminated against the LGBTQ community wasn’t properly amended provides a good example of the power of these growth drivers over policy.
From a governance perspective, per Equileap, a leading investment gender data provider, only 59% of US, 30% of Asia-Pacific, and 28% of European traded firms have sexual harassment policies. It would be interesting to compare the credit ratings and Sharpe ratios of those firms who have policies in place versus those without as they could serve as icons of an overall forward-thinking risk management and board philosophy that the markets, both investment and talent, generally like to reward.
Another important determinant of corporate exposure, which applies to sovereign entities as well, is women’s involvement in the organization, from Board level down. Aside from EBITDA impacts of increased gender participation, work by the likes of Morgan Stanley and MSCI has determined that simply increasing the percentage of women in the workforce correlates with a variety of reduced risks that implicitly impact discount rates.
Further, a study by the Haas School of Business reveals women have a greater predisposition to address Environmental, Social, and Governance (ESG) factors, which can be viewed as a material risk mitigation practice. This implicitly should also lower rates. Clearly, acquiring, promoting, and retaining women is key to company performance. Creating cultures of equality and inclusion, free from the banes of GBV and discrimination, are an essential part of this formula.
In the equity equation, as more data are generated, it is only a matter of time before firms filing S-1s to go public, or raising their next round, will see their offering prices explicitly influenced by the firm’s history of dealing with GBV, and its current policies and initiatives to curb it. The rippling effects of Uber’s toxic environment, including the City of London’s pulling of its license due to the company’s lack of regard for GBV/discrimination-related incidents, contributed to a valuation hit of over $20 billion.
Additional related measures, such as the number of women on boards, in senior management, as percentage of the workforce, and pay equity policies––all shown to have material impacts on results and risks––will also factor in. Indeed, these kinds of disclosures are currently being “suggested” by many exchanges around the world. Given the momentum behind broader standards (e.g., ESG criteria), their inclusion seems inevitable.
The Core Issue
At their core, GBV and related transgressions are rooted in millennia-old male privilege, often backed by religious authority. Exorcising GBV requires pushing through these antiquated and destructive norms, and replacing them with structures that promote equality, inclusion, and ultimately, humanity. Those countries, states, municipalities, and companies that can evolve the quickest will materially benefit the most.
This trend is already glaringly obvious in the U.S., where college graduates increasingly are moving to urban centers, most of which are located in more liberal states. They are also looking to work for companies with palpable purposes and values. And by 2021, per the U.S. Department of Education, for every 100 men who graduate with a degree of some level, 148 women will graduate with similar distinctions. Follow the math and the money.
Unpacking centuries of dominance and subjugation can be excruciatingly threatening and complex to all involved, women included. Backlash is a certainty. Indonesia’s efforts to institute GBV-related legislation are currently facing pronounced pushback by its more conservative demographics.
Changes such as these rarely happen without the involvement of a variety of internal and external stakeholders and influences, who usually bring a variety of self-and-conflicting interests. While the capital markets have traditionally, and passively, sat on the sidelines, they now have an opportunity to make a pronounced, immaculately-aligned, and life-changing entrance on a stage with very human, and personal, actors of all genders.
All 7.7 billion.
Previously Published on Medium