Second in a series on Women in the Economy
One small step into the corner office by a female executive could mean a giant leap for a firm’s bottom line, depending on how she gets her foot in the door.
Women still dramatically lag behind men in holding corporate leadership positions, but they are climbing the ranks. An analysis by Catalyst found that as of January, just 5% of CEO roles at S&P 500 companies were held by women. Among the handful at the helm of blue chips are
International Business Machines
At the same time, The Wall Street Journal reported last month that all S&P 500 companies now have at least one female board member, with 27% of all board seats filled by women, up from 17% in 2012. But while data link senior women to improved business economics, merely adding a token woman to a board or senior management seat could actually have deleterious effects.
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There are plenty of factors that would suggest more female leaders in business are coming. The college enrollment rate for high-school graduates is now higher for women than for men, according to the Bureau of Labor Statistics. Those students are choosing degrees that translate to the corporate world. According to the Association to Advance Collegiate Schools of Business, women represent 58% of all graduates in social science, law and business globally. Some 40% of M.B.A. graduates in the U.S. are now women. With more qualified women in the applicant pool, it follows that women should be landing more senior roles.
Some of the change has been mandated. Last year, California became the first U.S. state to require female board representation. Sen. Hannah-Beth Jackson, who sponsored the bill, said the rule would benefit the economy and each of the companies involved. This gender-based regulation isn’t unique: In 2008, Norway required at least 40% of the boards of listed companies to be comprised of women, and many countries followed suit with similar quotas.
On the surface, gains in gender equality at the top seem like a good thing. A 2016 survey by
and colleagues at the Peterson Institute for International Economics found that for profitable firms, a move from no female leaders to 30% representation was associated with a 15% increase in the net revenue margin.
But just adding a female to a senior role doesn’t guarantee better outcomes. Legislation might come with unwanted side effects. The so-called golden-skirt effect, whereby a few qualified women are invited to sit on many boards, is one concern. The fear is those women will be stretched too thin, leading to less effective oversight.
Shoehorning women into important roles can also be counterproductive, according to
an associate professor at the Cornell Johnson Graduate School of Management. Her research shows the heightened visibility of being a minority can prompt jealousy of other qualified female applicants, as well as fear that less-qualified women will reinforce existing negative stereotypes. These threats can effectively curtail growing diversity, she found.
To avoid token representation amid increasing regulation, firms may want to accelerate the pace of female hires beyond what is required. While the Peterson survey didn’t show that having a female chief executive by itself increased profitability, it found “robust” evidence for higher profitability associated with raising the percentage of overall female leaders in the C-suite.
No Lone Wolves
Relationship between prior-year female board representation and female executive representation among organizations listed on the Australian Stock Exchange
Female executive representation
PRIOR-YEAR Female board representation
A recent study by
out of the University of South Australia Business School and collaborators found a positive, nonlinear relationship between female board representation and female executive representation across organizations listed on the Australian Stock Exchange. In other words, firms may be able to maximize the benefits of the “trickle-down effect” by making multiple simultaneous appointments of women to board roles. Senior women often advocate to hire other women, the study suggests. And even if they don’t, their presence attracts other women aspiring to senior roles. A study of more than 20,000 firms from the U.S. Equal Employment Opportunity Commission showed a similar effect between women in top managerial and midlevel management positions.
More educated women vying for executive positions will eventually result in more women at the top of the corporate world, mandated or not.
Write to Laura Forman at firstname.lastname@example.org
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