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By Tal Sansani - November 09, 2017
Male executives talk more than their female counterparts. It may seem a bit unexpected for an investment firm to point this out, but that's exactly what ancillary data from our research indicates. As quantitative active managers, our job includes researching and analyzing new sources of insights that help inform our investment strategies. These sources increasingly come from unstructured data—like transcripts from corporate earnings calls1—information that doesn't come neatly packaged in a spreadsheet or SQL database.
We recently came across some striking statistics showing clear signs of gender bias in corporate quarterly conference calls. Analyzing CEO and CFO language across tens of thousands of transcripts from the largest 3,000 companies in the U.S., we found evidence of male CEOs actively talking more than their female counterparts. What's more, we found that female-run companies exhibited far more equitable air time between the genders than male-run companies.
In an "all hands" meeting at Uber back in June, the company's board of directors addressed sexism within the firm. Board member Arianna Huffington noted that data shows when there's one woman on a board, "It's much more likely that there will be a second woman on the board." That's when fellow board member David Bonderman interjected, "Actually, what it shows is that it's much more likely to be more talking." He resigned his seat on the board that same day amid significant PR fallout.
Bonderman's remarks aren't just inflammatory, they're flat-out wrong. And we have the numbers to prove it.
Once a quarter, company leaders (CEOs and CFOs, mainly) get on conference calls with analysts to discuss recent performance and company fundamentals. The question-and-answer section of the call provides an unscripted peek behind the corporate curtain—the back-and-forth dialogue from executives, in real world, high-pressure business settings.
We employed our proprietary technology to parse over 60,000 conference calls from 2011 to 2016. Here's what we found:
While it's well documented that women are under-represented at high-level positions,2 what we found was their voices are also (literally) under-represented even when they are sitting at the table. During the unscripted Q&A portions of conference calls, male CEOs spoke 24.4 percent more than female CEOs. Male CFOs also spoke more than their female counterparts—26 percent more, in fact.
Even more noteworthy is how the talk time differs in the presence of a male versus female CEO. At firms led by men, the male CFO spoke 29.3 percent more than a female CFO. However, if a woman was at the helm, male CFOs only spoke 6.6 percent more than female CFOs.
Finally, the data also shows differences in how the genders express themselves when they're speaking. In this case, men were slightly more likely to self-reference, using words like "I," "me" or "mine." In contrast, women were more likely to reference the team, using words like "we," "our" and "us."
Not only do our findings debunk a stereotype about women, they also have investment implications within our team's systematic framework. We have built an artificial intelligence (AI) platform that identifies subtle patterns propagating through large volumes of executive dialogue. Our systematic approach is free from the subjective biases that often affect investors, but we ask many of the same questions. For example, is management speaking optimistically about their prospects? Are they exhibiting abnormal signs of exaggeration or spin? Is their language excessively vague or over-generalized for a given topic?
Our artificial intelligence platform quantifies such concepts, tracking not only what is being said, but also accounting for who is saying it. We find that gender biases indeed play an important role in understanding the language patterns of executives.
Specifically, our algorithms indicate that female-led companies tend to exhibit fewer signs of obfuscation in their conference calls than male-led companies, thereby providing higher quality communication to the investment public. The quality of communication from management affects the way information is digested and acted upon, thereby impacting near-term price movements in meaningful and predictable ways. Longer-term, poor communication patterns may also result in a loss of trust from investors and raise questions about corporate governance.
Whether it's the stereotyping of female board members or an investor's long-held belief in a CEO that he "just trusts", biases play an inherent and influential role in how the human mind operates. Maybe that simplifies things for us. Or maybe, in the absence of facts, investors tend to hold onto what they want to believe. In the disciplined equity group at American Century Investments®, we prefer to let the data speak. Thanks to our proprietary technologies, we quickly notice when anomalies in business conversations occur. Noting anomalies—and acting on them—is just one way we attempt to outperform for our clients.
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1 Source: Thompson Reuters StreetEvents, raw transcript text.
2 Female representation in high-level positions as of March 31, 2017: Female CEOs approximately 5%, female CFOs approximate 12%. Data from Reuters/Compustat.
The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.