Monday, May 16, 2016

Sisters Are Doing It For Themselves...And Others

In my research and investing I stress three things: people, structure and value.  I look for companies that are controlled and managed by quality people, have corporate structures that align minority and majority shareholder interests and trade at valuations that are below fair value if not outright cheap. This post is about people and how women are making big strides in developing countries.

One of the most important steps in my research process is checking the background and reputation of corporate leaders, politicians and policy makers. Basically anyone that may influence equity valuations. Over the past several years I seem to be spending more time researching and evaluating female leaders.

The increase in the number of women leaders in ‘emerging’ and ‘frontier’ markets is particularly noticeable. I've been spending a lot of time looking at companies in these markets as for the last few years as they've been trading at valuations significantly less expensive than their counterparts in the ‘developed’ markets.

This is a large and long-term positive development.  Theoretically a larger pool of candidates should lead to better leaders. This should ultimately benefit companies and countries that make full use of their resources.  I read years ago in The Economist that educating girls and young women was almost a sure-fire way to increase a country’s living standards.

The increase in female executives was most noticeable on a research trip to Romania last year. As I've written before, stocks traded in Bucharest were some of the world’s least expensive and I went to see if they were merely cheap or had value (see here). 

On the last day I realized that at least half of my meetings were with women.  This was especially surprising considering that most of them are leaders in the traditionally male-dominated energy companies, the largest sector by far on the Bucharest Stock Exchange.

In fact, three of Romania’s largest listed companies are led by women.  OMV Petrom – the country’s largest private oil and gas company is headed by Mariana Gheorghe.  Transelectra – the country’s largest electricity transmitter is headed by Carmen-Georgeta Neagu, and Nuclearelectrica – the country’s largest electricity generator and sole nuclear generation company, is headed by Daniela Lulache.

At my last meeting – with two women executives – I asked what policies Romania had enacted that led to such a large proportion of female executives.  The response was pretty blasé.  They couldn’t think of any, but suspect it had to do with Romania’s communist past.

This could be true.  Eastern Europe and Russia have a higher percentage of women corporate leaders than any other region in the world if the 2015 Women in Business report by Grant Thorton is accurate (see here).

The report notes that 40% of senior business roles in Russia are held by women, which is significantly higher than Western Europe’s 26%.  The report also notes that seven of the top eight countries with the highest percentage of women in senior roles are in emerging European countries. In addition to Russia, these are Georgia, Poland, Latvia, Estonia, Lithuania, and Armenia.  Another factor could be the high proportion of women to men in the ex-Soviet Union (see here).

Interestingly, one thing that the warring brother countries (sister countries?) of Russia and Ukraine had in common until recently were highly respected female finance ministers. Russia’s Elvira Nabiullina is spoken of as being one of the best in the world and someone who has Putin’s confidence; while Natalie Jaresko is one of the few people in Ukraine’s cabinet who seems competent (see here and here).

The Soviet and communist past likely doesn't explain it all. Half-way around the world there are many women in leadership positions in Jamaica. As I wrote in last year’s post, this includes the mayor of its largest city, the head of its stock exchange, its largest bank as well as its largest electric utility (see here). While the female Prime Minister recently lost to her male rival, a recent article on corporate merry-go-rounds in Jamaica emphasizes the prevalence of women in the country’s private sector (see here).

Further south, trends in Latin America also point to more women in corporate leadership positions.  According to a study by Mercer, by 2025 Latin America should lead the world in the proportion of women in professional jobs.  The report notes that in contrast to the developed markets, where the focus has been on recruiting women for top positions, Latin American companies are adding female workers across the board (see here).

I don't know if female leaders will do any better than their male counterparts over time.  I’ve read articles saying women make better investors, financial consultants and political leaders than males.  This could be true, but I suspect that given all the sexism that exists, the ones that make it to the top faced a much higher barrier to entry so have to be that much better.  As more women enter the workforce and obtain leadership positions, I suspect they will prove no better or worse than men.  Regression towards the mean works in just about every other large sample set, and I suspect it will work here.

Another way to put this: for every Sheila Dikshit (the highly respected Mayor of Delhi), Tri Rismaharini (Surabaya), and Michelle Bachelet (2x President of Chile), there’s a Dilma Rousseff (close to being impeached President of Brazil) and Cristina Kirchner (controversial ex-President of Argentina). 

It’s been over 20 years since I very briefly met Benazir Bhutto on my second investment trip to Karachi in 1992, and over thirty years since Aretha Franklin and the Eurythmics released this blog’s soundtrack (see here). Since then women throughout the developing world have made great progress.  I notice this on an on-going basis as I look for value around the world.

In some countries, the proportion of female corporate leaders has leap-frogged developed markets.  I suspect this trend will continue and if anything provides yet another reason for investors to look at developing countries as a long-term investment just as they do for ‘developed’ countries.
  

Other Influential Women in Emerging Markets (I suspect I just scratched the surface. Please leave additional insight in the comments section below):

  • Ellen Johnson-Sirleaf – President of Liberia
  • Sheikh Hasina Wajed – Prime Minister of Bangladesh
  • Ewa Kopacz – Prime Minister of Poland
  • Ngozi Okonjo-Iweala – Economist and ex-Minister of Finance of Nigeria
  • Sri Mulyani Indrawati – Managing Director of World Bank Group, ex- Finance Minister of Indonesia
  • Nguyen Thi Phuong Thao – CEO of VietJet and Vietnam's first female US$ billionaire 
  • Chandra Kochar CEO of ICICI Bank, India
  • Dong Mingzhu – President of Gree Electronic
  • He Qiaonu – Founder and Chairperson of Beijing Orient Landscape and China's most generous philanthropist in 2015 
  • Valeriya Gontareva, Head of the National Bank of Ukraine



1 comment:

  1. A contact in Europe, who prefers to remain anonymous, sent the following comment via email...(May 2016)

    "I think the reply of the Romanian business leaders was accurate. After WWII there was a big euphoria mainly in the Eastern Block countries regarding "progress" in the manufacturing sector. So much so, that people called their new-born daughters "Lokomotiva" and "Electrificatia". Another contributing factor was that the communists' (and especially Stalin's) disregard for human life lead to extraordinarily heavy losses of (male) life in the war, so there was no other choice than allowing women into the "world of labour" after the war. The women, on the other hand, realized that having lost their husbands to the war they were on their own now and had to earn a living. From the perspective of the communists this also had the added "benefit" of alienating children from their mothers and put them under the spell of "the party". And there was probably no other country in the former Eastern Block that was more unscrupulous in "transforming" society in line with their own objectives than Romania. So by the time the cold war ended and the iron curtain came down, there was probably no other country in the world with as many female engineers as Romania.

    "And today's business leaders are the daughters of that generation, so they learned - by observing their mothers - from childhood that a woman is supposed to be successful in the business world and earn their own money.

    "Christine Lagarde has been quoted as saying that "if Lehman Brothers would have been called Lehman Sisters, the GFC would never have happened", which is quite ironic considering that the CFO of Lehman was a woman, as was the Chief Risk Manager of Hypo-Real-Estate in Germany."

    ReplyDelete