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Ideas for Leaders #780

Demand vs. Supply: The Future of Women in Top Leadership

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Key Concept

Research-based on Norway’s pioneering quota for corporate boards reveals the positive impact of demand-side pressure to resolve the gender gap in corporate top leadership—and the contribution gender differences bring to corporate strategies and outcomes.

Idea Summary

Women continue to be vastly under-represented at the top levels of business, with recent figures in the U.S. indicating that less than 5% of major corporations CEOs are women, and less than 20% of corporate board directors are women.

What accounts for this continuing gender disparity? This question, according to University of Virginia professor and gender diversity researcher Amalia Miller, can be considered in terms of demand-side barriers and supply-side gender differences.

On the demand-side, corporations may resist promoting women to the highest levels, either because of overt gender discrimination (not wanting to see women in leadership positions), or for reasons that are less overtly discriminatory—e.g., male leaders may provide other men with more and better mentoring and access to networks. Also, gender stereotypes may convince corporate leaders that men have the attributes and competence required to take the helm of large companies. These often-invisible demand-side barriers form the “glass ceiling” that keeps women out of the corner offices and boardrooms. 

In terms of supply-side gender differences, women face greater conflicts of family and work, and are less able than men with families to make the sustained time and emotional commitment to work required to attain high leadership positions. Sometimes, women with the highest leadership potential (e.g., women with prestigious MBAs) are more likely to have the economic freedom to opt out of their careers and focus exclusively on family. For example, Miller found in a 2011 study that women with college degrees and women working in professional and managerial occupations pay the largest career penalties from early motherhood. Other researchers have pointed to gender differences in preferences in areas such as risk taking, competition and bargaining—differences that are not universal to all men and women, but can contribute to reducing the pool of potential female leaders.  

In sum, to use Miller’s terms, gender differences in top leadership roles can result from the pipeline of female leaders being “blocked” by demand-side barriers, or be “leaking” because of supply-side constraints.

For decades, social, policy and economic changes have given more women the opportunity through both demand-side and supply-side solutions to advance to leadership roles. Anti-discrimination laws banning sex-discrimination in the workplace reflected demand-side approach. Supply-side solutions included expanded access to education and modern fertility control techniques. Yet, the gender gap remains.

Miller notes that the effectiveness of supply-side policies to increase women leaders is uncertain. For example, mandating more generous maternity leaves to help women resolve work-family conflicts may reinforce companies’ hesitation to hire women. As a result, public policy has looked to demand-side solutions, most notably quotas, such as Norway’s famous 2005 mandate that required at least 40 percent representation of each sex on the boards of publicly traded companies. The penalty for non-compliance was severe: loss of status as a public company. 

The passage of time since the Norwegian mandate offers some insight into the impact of demand-side solutions and into the differences between male and female leadership. In one study, conducted by Miller in collaboration with David Matsa of the Kellogg School of Management, showed that at first profits in companies affected by the quota were lower than in unaffected companies (e.g., companies in other countries without mandated quotas or non-public companies in Norway). The reason was the Great Recession, which led many companies to reduce their workforce. Women leaders, however, balked at reducing the workforce in their companies during a recession, leading to the short-term profit losses. 

Was this finding — that women will sacrifice profits in the short term to keep workers employed — the result of gender preferences or simply the inexperience of the new female board members imposed by the quota? The evidence is clear that inexperience was not a factor. First, the average age and experience of board members were the same before and after the quota; women simply replaced men of the same age and experience. 

Second, Miller and Matsa’s study a year later of privately held U.S. companies—obviously not impacted by any quota—also found that women-owned companies were significantly less likely to reduce their labour force during the Great Recession than non-women-owned companies. 

A review by Miller and Matsa of previous research identified two types of gender differences in preferences that might lead women executives to put worker welfare ahead of short-term profits. The first is that women leaders are on average more benevolent and universalist; as a result they weigh the welfare shareholders as opposed to the welfare of other stakeholders (including workers) differently than men. Another possibility is that keeping the workers during a temporary downturn is profitable in the long term—and women have more patience than men to implement this strategy. Short-term profit losses would support the first possibility, but whether long-term profit gains support the second possibility remains to be seen.

On the other hand, one often-cited gender difference was not supported by Miller and Matsa’s research. Companies impacted by the quota did not show any changes in their financial leverage (debt-to-assets ratio), a finding that seems to indicate that women are not necessarily more risk averse than men, despite prevailing sentiment to the contrary. 

Miller and Matsa’s quota-related research neither confirmed nor denied another potential advantage of more women in leadership roles: the “spillover effect,” in which have more women at or near the top of the organization will help women further down the hierarchy to be promoted in leadership positions. However, their study of 12 years of data on U.S. corporations did support the existence of this benefit. 

Business Application

Demand-side solutions to the gender gap in women leaders offer several benefits:

  • Most importantly, they lead directly to the goal of increasing the number of women in leadership positions. 
  • They encourage women to invest more in their leadership skills (since they have a greater chance of getting a return on their investment).
  • As a result, they expand the pool of qualified women leaders.
  • Once in place, women leaders tend to enable other women in the organization to be promoted. 

Miller and Matsa’s research, combined with other research, shows positive differences in leadership styles between men and women that can benefit organizations:

  • Women leaders have a more benevolent leadership style as reflected in their response to the Great Recession. 
  • Women directors tend to increase board conscientious, including devoting more resources to CEO monitoring. 
  • Women leaders are also less likely to engage in costly “empire-building” through ill-advised acquisitions; the reason is that women are less likely to suffer from over-confidence.

In short, the supply of qualified women for key leadership roles in large corporations exists. Corporate executives and boards have a duty not only to potential women leaders in their organizations, but also to shareholders and customers, to create the demand for these executives of the future.

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Authors

Institutions

Source

Idea conceived

  • March 2017

Idea posted

  • November 2020

DOI number

10.13007/780

Subject

Real Time Analytics