Research

They're few and far between, but female executives benefit the firms they work for

Carly Fiorina was ousted from her role as CEO of Hewlett-Packard after the merger with Compaq, but that doesn't mean that women can't hold their own in the male-dominated corporate world. In fact, firms with female leaders may well be better off than firms without, according to recent research by W. P. Carey professor of management Amy Hillman. However, management professor Peggy Lee's research shows that company shareholders react more negatively to female CEO appointments than to male CEO appointments.

2007-10-10

"The fate of Carleton S. Fiorina, chief executive of Hewlett-Packard and the highest-ranked female chief executive in the Fortune 500, could be a test," wrote Alessandra Stanley in the New York Times on January 13, 2002. "The key would be whether she is then viewed as simply another risk-embracing chief executive who was driven out when shareholders balked at the company's stock price, or as a poignant symbol of how women still can't quite make it in the cutthroat, male-dominated corporate world."

Women bring unique benefits to the corporate table

Recent research by Catalyst Inc., a non-profit organization focused on women in the workplace, shows that among Fortune 500 companies, those with the greatest number of women on their boards performed significantly better financially than companies with fewer female board members.

W. P. Carey professor of management Amy Hillman says that women in high-ranking corporate positions (on boards of directors, in Hillman's research) offer their companies many benefits, so much so that "many firms purposefully seek out female directors."

Hillman lays out her research in a paper titled "Organizational Predictors of Women on Corporate Boards," published in August, 2007 in the Academy of Management Journal. The benefits of having female board members, Hillman contends, include the ability to offer a different perspective for advice and counsel, which is one important responsibility of board members.

"Specifically with regard to gender, research suggests that organizational actors make decisions consistent with their cognitive bases and that people of different gender possess different norms, attitudes, beliefs, and perspectives based on these differences," Hillman and her co-authors, including Albert Cannella of Tulane University and W. P. Carey doctoral candidate Christine Shropshire, write. For those reasons, the authors argue, "gender diversity is found to facilitate creativity within groups."

Secondly, Hillman found that firms benefit from the legitimacy that a greater number of female board members provides. "The pressure for gender diversity comes from a number of different stakeholders that firms are dependent upon, while there are few organized interests that argue against such board appointments," the authors write.

"I'm not sure everyone in society believes in gender equality or diversity in the boardroom, but in general there is evidence that our society has a 'value in diversity' belief that there are more positives associated with diversity than negatives. There is a fair amount of press devoted to getting more diversity on boards and a number of big institutional investors (CALpers, TIAA-CREF) make it a requirement for the firms they invest a lot in," Hillman said.

Finally, "by virtue of their different experience sets, beliefs, and perspectives, women have the potential to link organizations to different constituencies than men," Hillman and her co-authors write. The authors note that women make 88 percent of all purchases in the U.S. and control half of all households with more than $500,000 in assets. "The importance of female purchasing power is recognized within boardrooms," they write. And who better to provide insight into that huge customer segment than women?

In addition, Hillman notes that "women directors signal that the organization offers opportunities for career growth to both current and prospective employees." That's important in a world where the main reason female managers leave an organization is because they perceive a lack of career growth opportunities — and that turnover comes at a high financial cost for those organizations. The presence of females on corporate boards, then, not only demonstrates that the organization allows women growth opportunities, but also offers the perception, at least, of a female-friendly work environment.

yet investors react more negatively to female CEO appointments

Other research, by W. P. Carey management professor Peggy Lee and University of Virginia professor Erika Hayes James, shows that company shareholders react more negatively to female CEO appointments than to male CEO appointments.

Lee's paper, "She'-e-os: Gender Effects and Investor Reactions to the Announcements of Top Executive Appointments" appeared in the March, 2007 issue of the Strategic Management Journal. The crux of the argument, Lee says, is that there is more uncertainty associated with the appointment of a female CEO because there are so few — investors don't know what to expect.

"Observers have virtually no frame of reference with which to evaluate women in top management," Lee writes. "Thus, they rely on stereotypes of women — stereotypes that are inconsistent with the leadership role." Any change in a company's top management brings an element of uncertainty — and Lee's research shows that investors react negatively to new male CEO appointments, too.

But because there are so few female CEOs, a new female CEO appointment generates more uncertainty — and more negative reaction — among investors. Lee's research does offer some heartening news for aspiring female executives, though: stock market reactions to female top management appointments don't differ significantly from reactions to male top management positions. That's because there are increasingly more women in top management positions, Lee and James write.

"As the number of women in top management positions increases, these women should be viewed no differently from their male counterparts." The same factor that causes shareholders to view new female CEO appointments more negatively causes media reports of female CEOs to be gender-biased also. That is, the fact that there are few women CEOs makes those few seem particularly "interesting, unique, and noteworthy."

Lee and James did a text analysis of news reports on female and male CEO appointments, and found that the top influential words in reports on female CEO appointments included gender-biased words such as "woman" and "family" whereas the top influential words in reports on male CEO appointments did not. "All of the top influential words for men were strongly associated with the nature of the role of CEO (e.g., company, business, market, chairman).

Although these words also appeared among the most influential in the reports depicting women CEOs, women's reports did allude to aspects of gender," write Lee and James. More detailed results of the text analysis showed that many reports on female CEO appointments focused on the women's past experience, such as "Ms. Executive, who formerly served as President " whereas reports on male CEO appointments focused on interesting features of the men's lives, such as "Mr. Executive, a history major, was raised on Long Island "

Reports on female CEO appointments also often highlighted the fact that the new CEO was female, such as "Ms. CEO is the most influential female executive " "It's clearly a salient feature that she's a woman," Lee said, "because being a woman and a CEO is so unique." Lee said that the same uniqueness principle applies to men in jobs that are dominated by women, such as nursing.

Who can forget the line from Meet the Parents when Jack Burns says, with thinly-veiled indignation, "Greg is a male nurse." Fortunately for women aspiring to the C-suite, "as the proportion of men to women becomes equal, women leaders should be less interesting, unique, and noteworthy" — and therefore less subject to skepticism and more negative reactions.

It's all about opportunity

Lee's research demonstrates that people perceive female qualities to be out of sync with the qualities of a successful CEO, but that's because the majority of CEOs are men. "The low representation of women in top management positions also likely reinforces the stereotype that women are less qualified for such positions then men," Lee and James write. Director of Women and Gender Studies Mary Margaret Fonow says that there are a number of reasons why there are so many more male CEOs than female ones.

"One is the incompatibility of family dynamics and the way the work world is structured in the U.S.," she said. "The fact is that women are largely responsible for household and family responsibilities," Fonow said. That's true even when a woman works. "Even women working in high levels of corporate America still think about caretaking." Of course, many corporate executives — male and female — hire people to help with household maintenance.

"But there's still work that can't be hired out," Fonow said. Even if it's just the logistical aspect of managing the household, or the emotional aspect of being ultimately responsible for dependents' care, it weighs on women's minds more than men's. Women have largely assumed the caretaker role, Fonow said, in part because of their proximity to the children — they are the ones who give birth. Fonow rejects the idea that women are more naturally nurturing and men more naturally competitive.

"I don't think that women or men have an inherent predisposition for any certain qualities — those that make a good homemaker or those that make a good CEO," she said. "There have been reports that there are biological differences between women and men that make women more prone to be nurturers and men more prone to be leaders. But I don't find those reports convincing." Instead, Fonow said, the qualities of a successful executive have been set by our business culture.

"The people who have those qualities had the opportunity to develop the skills and talents necessary to succeed in corporate America. It's not that men are more likely to be born with those qualities than women, it's that the opportunities to develop them are weighted toward men," Fonow said. For example, a woman who had the opportunity to play competitive sports growing up, who is single and not tied to caretaking, would be just as successful a CEO as a man, Fonow said.

73 years to equality

But despite Fonow's assertions that women can develop the qualities necessary to succeed as CEOs; Hillman's research that shows the benefits that accrue to firms with female board members; and Lee's research that suggests that the more women there are in executive roles, the less skepticism they'll face — there are still only 13 female CEOs of Fortune 500 companies. On corporate boards, it will take 73 years for women to be equally represented, according to Catalyst's estimates.

Lee hopes that her research spurs more women to aspire to top management and CEO positions. As more and more women join those upper echelons of corporate America, the notion of a female CEO, CFO, or Senior VP will become less extraordinary — and the stereotypes of women as not fit to govern corporations will diminish. And that means the rate of women joining the corporate ranks will increase.

And research results such as Catalyst's and those offered by Hillman and her co-authors should encourage firms to offer board positions to more women, if only for the benefits to the firms. Their findings, Hillman and her co-authors write, "represent areas of opportunity both in terms of women seeking to advance into the corporate elite and for firms to improve their gender diversity." Here's hoping we won't have to wait 73 years.

Bottom Line:

Companies with the greatest number of women on their boards performed significantly better financially than companies with fewer female board members.
Women in high-ranking corporate positions offer their companies many benefits, so much so that many firms purposefully seek out female directors.
Because there are so few female CEOs, a new female CEO appointment generates more uncertainty — and more negative reaction — among investors than the appointment of a new male CEO.
A principal reason why there are so many more male CEOs than female ones is the incompatibility of family dynamics and the way the work world is structured in the U.S.
Men aren't more likely than women to be born with the qualities of a successful CEO, but the opportunities to develop those qualities are weighted toward men.
As the proportion of men to women in the C-suite becomes equal, women leaders should be less interesting, unique, and noteworthy — and therefore less subject to skepticism and negative reactions.

Leadership Management Faculty