Dearth of Women at the Top Marks a Loss for Companies

Special from The Record

March 12, 2009Bookmark and Share

Hillary Rodham Clinton’s presidential bid may have produced 18 million cracks in the political glass ceiling, but the corporate glass ceiling has proven much harder to shatter.

As of 2006, less than a third of the nation’s largest 1,500 public firms counted at least one woman on their senior management team, according to Standard & Poor’s. Less than six percent of those firms claimed two top-tier female managers that year, and just 12 Fortune 500 companies were headed by a woman.

David Ross
Columbia Business School Professor David Ross

Such statistics may be depressing for women’s rights advocates, but it turns out the situation they reflect may be detrimental for firms that hew to an all-male executive philosophy, says David Ross, assistant professor of management at Columbia Business School. Together with his colleague Cristian Dezső, of the University of Maryland, Ross has uncovered data showing that having a higher percentage of women in senior management is positively associated with better performance by a company.

“We document that those firms with some level of female participation in the upper echelon substantially outperform their peers, on average,” says Ross. “And we find evidence that suggests that it is the presence of these women that is driving the superior performance.”

Ross says that having even a single female manager on an executive team, for example, is associated with a three percent increase in a firm’s market-to-book ratio, a measure of the current value of a company. Ross, a former vice president with Citigroup Investment Banking, now studies how firms organize themselves in order to influence their competitive behavior.

His research has gained the attention of his academic peers. “David shows there is a smoking gun here—that there are gender differences in management styles that impact the bottom line, which is somewhat unexpected,” says Ben Campbell, a professor at Ohio State University. As the findings become public, “It’s going to be harder for the old-boy network to persist and ignore what women managers can bring to the workplace,” says Campbell.

Ross’s argument has been echoed by many influential people who point to Wall Street’s all-male executive suites. Columnist Nicholas Kristof of The New York Times recently opined that the nation might not be in the same mess today if Lehman Brothers had been “Lehman Brothers and Sisters.” In a January Washington Post op-ed column, Barnard President Deborah Spar wrote, “It may be that women perceive and act on risk in subtly different ways; that they don’t, as a general rule, embrace the kind of massively aggressive behavior that brought us a Dow of 14,000 and then, seemingly overnight, a crash of epic proportions.”

To reach their conclusions, Ross and Dezső measured the success of the 1,500 public firms over 14 years ending in 2006. They tracked the success of the firms by using traditional metrics, such as the market-to-book ratio, return on assets and annual sales growth.

The study provides evidence for the existence of the so-called female management style, Ross says, which holds that female executives tend to manage in a more democratic way, as opposed to the more autocratic approach associated with the stereotypical male boss. That democratic style fosters creativity, teamwork and desire to solve problems, says Ross.

In addition, he notes, research indicates that male managers are prone to overconfidence, which may have contributed to the current financial crisis.

The study, which is in the process of being submitted to a major journal, finds that the presence of senior female managers is most strongly associated with superior performance in firms that put high emphasis on innovation. Such firms often belong to creative industries and tend to spend disproportionately on research and development.

“There’s often a tradeoff between doing right and doing well,” says Ross. “But we see that providing more opportunities for talented female managers is doing right and well.”

—by John H. Tucker

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