Gender Wealth Gap: Why We Need to Equalize Equity Ownership and Increase Board Representation
Earlier this year, I highlighted the gender wealth gap and cited two potential reasons for women owning just 32 cents for every dollar that a man owns, and Black and Latinx women owning just pennies: equity ownership / entrepreneurship and investing. Generally, the gender pay gap has attracted headlines; however, each component driving the gender wealth gap is worth a further deep dive.
2020 was one of our most tumultuous years in recent history. Even in that environment, global venture funding rose 13 percent from the previous year, yet investments in women-led companies fell 27 percent; the world’s 500 richest people gained $1.8 trillion, yet 91 percent of that windfall went to men. If we are seeing such disparities in wealth, what does equity ownership look like for startup founders, early employees, senior executives and board members who, typically, have the greatest percentage of equity?
Carta Equity Gap
This past December, Carta, (an Anthemis portfolio company) published a report, Table Stakes, that analyzes equity distribution by gender, race and ethnicity, and geography. The report broke down the four categories of corporate stakeholders that own the lion’s share of the equity: founders, senior executives, early employees and technical employees.
They found that, for every dollar in equity that men collectively own, women own just 47 cents. Additionally, even though women represent 35 percent of equity holders, they only own 23 percent of the equity. How does this happen? Women lack representation in the positions that have the highest equity ownership i.e. founders, early stage employees and engineering roles, and, traditionally, have been in roles with lower equity compensation grants.
It is no surprise that senior executive positions often earn larger equity grants, yet many of the senior roles are still held by men. The Carta study shows that women are underrepresented in all roles from director and above.
Not only have women been underrepresented in senior leadership roles, but, since 2016, the percentage of women founders in the startup ecosystem has stayed relatively constant, never surpassing 20 percent. In part, this is due to the inherent circularity in the venture ecosystem that is prominent at the pre-seed and seed stage, where venture capitalists are more likely to back repeat founders or senior executives from successful startups. If women entrepreneurs are only raising < 3 percent of capital, and are disproportionately represented at senior management level, there is lower potential for repeat female founders/executives than there is for male counterparts.
The biggest outcome for any venture-backed startup usually occurs at the founder level. We have had a handful of high profile exits over the past six months from a variety of unicorn founders that draw back the curtain on equity ownership. I wanted to take a look at the difference in salary/equity ownership for those successful outcomes, and included Bumble, Airbnb, Coinbase, Dash and Stitch Fix.
What is notable is that, in each case of $ABNB, $COIN and $DASH, there was a dual-class structure cementing the founder’s control over the company. Between the three companies, on average, the male co-founders together controlled 52.8 percent of the vote, versus their female counterparts at 15.7 percent, they controlled 23.2 percent of equity in the company versus their female counterparts at 14.1 percent. While the USD annual compensation is in line, there is a slight anomaly in that Brian Chesky, CEO of Airbnb, took a significantly reduced salary in 2020 due to the COVID-19 pandemic, and they Airbnb to provide any disclosures ahead of that time period (although Chesky was allotted an annual $300,000+ “Security Budget”, which I include below).
While some might argue it is ‘apples to oranges’ to compare a group of co-founders to a single founder, the equity ownership amongst a founding team, and subsequent dilution thereafter, should look comparable as a group. So the fact that the male cohort raised nearly three times as much money but still controlled more equity, highlights part of the bigger picture issue.
In addition to backing female founders, how can we ensure that there is adequate representation on the cap table for female employees more broadly? That starts at the management level, ensuring there is gender parity, which should be part of any board’s mandate going forward. Over the past five years, there has been a greater push for diversity on boards. Since Katharine Graham became the first woman to be named CEO of a Fortune 500 company in 1972, we have recognized the need for more women to hold CEO roles and board seats. While 90 percent of all S&P 500 CEOs are men, and 70 percent of all S&P board seats are held by men, this past January, women gained 22 more S&P board seats (the largest jump in two years) and, currently, all S&P 500 boards include at least one woman. In the largest IPOs of 2019, we saw a shift in board composition. Women held 21.9% of the board seats in the 25 largest IPOs that year, according to a report by 2020 Women on Boards, up from a five-year average of 10 percent.
Having greater gender diversity also drives greater profitability. Companies are 25 percent more likely to outperform their peers on profitability when women are well represented in leadership. Additionally, shares of companies with female CEOs outperformed those of companies led by men by an average of 20 percent over two years. McKinsey published a report studying over 1,000 companies and found that those in the top quartile for gender diversity on their executive teams were 21 percent more likely to have financial returns above their national industry median than those in the bottom quartile.
We have seen an encouraging emphasis on the importance of more diverse board representation. California requires all public companies to have at least one female board director, and public companies with all-male boards will face a $100,000 fine under a new state law. The Nasdaq is pushing for SEC approval to implement a board diversity rule for the approximately 3,000 companies listed on its exchange. BlackRock Inc. and State Street Global Advisors are voting against directors at companies without a female director. Goldman Sachs will not take a company public unless there is at least one diverse board candidate, with a focus on women, and will look to raise the threshold to two diverse directors this year.
Getting women on the board is an important first step in helping to close this equity gap, but it is really just the starting line. They need to be empowered to have hard conversations, push for gender parity, and ensure equity grants are consistent with seniority regardless of gender.
Closing the Equity Ownership Gap
Reducing the equity ownership gap is a critical part of reducing the gender wealth gap. So, what can be done to accelerate this? We can invest in more women entrepreneurs, build diverse boards and encourage every participant within the entrepreneurial system from early stage founders, venture capitalists, capital allocators, investment bankers, attorneys, government regulators, to the stock exchanges, to act on gender diversity.
We need to continue to support organizations like the Boardlist, which connects exceptional, diverse candidates with global board opportunities, and All Raise, which just launched Board Xcelerate, a 90-day program to tackle the urgent problem of the lack of diversity at the board level by bringing powerful stakeholders together.
If you are interested in starting a company, but don’t know where to start, my DMs are open. And, if you’re a female founder in fintech, we would love to talk to you at The Female Innovators Lab.