The Dow Has a Token* Problem. Does it matter?
With the departure of Walgreens CEO Rosalind Brewer, leadership of the bluechip benchmark index is about to become all-male.
Picture the Captains of Industry, gathered together in a room. They are seated at a long banquet table, sipping scotch and deliberating about the fate of the world. But what do they look like?
CEOs will never win a beauty contest, but this pageant would have mostly male contestants. Especially since Rosalind Brewer left Walgreens (WBA) on September 1. She was the only Black woman CEO of a Dow company. Her interim successor, Ginger Graham, is white and female.
This means that the Dow’s CEO roster may soon be all-male. Compare that to more than ten percent female leadership on the Fortune 500 list. And yes, there are two transgendered CEOS heading major public companies: United Healthcare (UTHR) and Coty (COTY). The interesting about the Dow Jones Industrial Average (DIJA) is that you could theoretically arrange that dinner banquet, since it contains just 30 stocks. The leadership of the Dow is not completely straight, white, and male — thanks largely to the presence of a smattering of tech companies. And companies with male CEOs may still have women in positions of senior leadership — such as Merck, which boasts female VPs in CFO, general counsel, and ethics and compliance roles.
The Dow is the oldest and stodgiest of the market indexes. It was literally created in the 19th century. It is also one of the most placid. Aside from a brief canyon at the height of the pandemic, it has averaged a steady 8% increase over the past five years.
DIJA 5-Year Performance Chart Courtesy of Yahoo Finance
Meanwhile, the S&P 500’s average annual return over the same time period was 13.5% — or more than five percentage points higher. That must be why more index funds (SPY, IVV, and many ESG-screened funds) are built around the S&P 500.
So yes, 30 companies is a smaller sample size. Keep in mind, the Wall Street Journal changes the players on the DIJA periodically, with the goal of keeping index weighted to reflect the performance of the economy as a whole. The Russell and S&P indices are also subjective, although interestingly — not the NASDAQ.
If creating a snapshot of economic conditions is important, do the demographics of the people in charge matter? I would tend to argue no. In the snarkiest terms possible, we’ve seen what that mindset brings us on the Supreme Court.
All the same, I’ll wager good money that Walgreens will soon be kicked off the Dow, and that the company who replaces them will have a female CEO. The automotive sector isn’t currently represented on the list, but no, it won’t be Mary Barra of GM. The company has lost too much ground to Ford (F) and Tesla (TSLA). Whether unconscious sexism in the markets could play a role is a question we might examine another time. There are simpler explanations — such as problems with the brand positioning and reliability of their vehicles.
Brewer had notable achievements during her three-year tenure at Walgreens (among them, acquisitions pivoting into healthcare and a drive to increase vaccine equity). The market didn’t view her departure as good news. The next permanent CEO of the drugstore chain, whatever their gender, will inherit the same structural weaknesses.
I would argue that empathy towards the experiences of customers and stakeholders matters a great deal. Diversity, equity, and inclusion should never rest on a single hire. But leaders need to understand the day-to-day realities of their markets (customer, suppliers, and labor) at every level. These abilities are something boards need to solve for when recruiting for the top spot, and include as part of their performance equation.
* Sorry crypto nerds, we’re not talking about ERC-20 or -721. I wish we were.