Research: Women in the C-Suite change how companies think

“After women joined the C-suite, firms became both more open to change and less risk-seeking.” (Photo: Unsplash)

Resumé: Research has shown that firms with more women in senior positions are more profitable, more socially responsible, and provide safer, higher-quality customer experiences — among many other benefits. And of course, there is a clear moral argument for increasing diversity among top management teams (TMTs). But when it comes to explaining why having more female executives is associated with better business outcomes, and what specific mechanisms cause those positive changes, existing research is much more limited. These are some of the findings by Corinne Post, professor of management in Lehigh University’s College of Business, Boris Lokshin, associate professor at the Maastricht University and Christophe Boone, professor of organization theory and behavior at the University of Antwerp in Harvard Business Review.

Published 16. May 2021 – Edit: EM – Web editor: Lucas Kanno Kastberg

The researchers set out to explore these questions by examining exactly how firms changed their strategic approach to innovation after appointing female executives. We tracked appointments of male and female executives and analyzed R&D expenses, merger and acquisition (M&A) rates, and the content of letters to shareholders for 163 multinational companies over 13 years to determine how these firms’ long-term strategies shifted after women joined their TMTs.

They state:

“As leaders in the European market, the firms we analyzed were all actively involved in activities associated with strategic innovation (e.g., technology-based M&A and internal R&D) during the observation period — but we found that their approaches to those initiatives varied significantly. Specifically, we were able to identify three distinct trends around shifts in firms’ strategic thinking following the appointment of female executives:

1. Firms became more open to change and less open to risk

First, we found that after women joined the C-suite, firms became both more open to change and less risk-seeking. In other words, these organizations increasingly embraced transformation while seeking to reduce the risks associated with it.

To quantify these subtle cognitive shifts, we first conducted a linguistic analysis of changes in company documents issued by the TMT. We used a standard word categorization methodology that grouped terms like “bold,” “venture,” and “chance” as likely reflecting a greater propensity for risk-taking, while terms such as “create,” “transform,” and “launch” indicated more openness to change. We found that after appointing women to the C-suite, the frequency of terms in company communications that indicated a propensity for risk-taking decreased by 14%, while the frequency of terms suggesting openness to change increased by 10%.

This suggests that adding women to the C-suite does not simply bring new perspectives to the top management team — it shifts how the TMT thinks. Our research indicates that female executives don’t just offer specific new ideas to the team; their presence actually makes the TMT collectively more open to change and less comfortable with risk-taking. And as we discuss below, this mindset shift was reflected in tangible changes to how these firms made key strategic decisions.

Corinne Post, professor of management in Lehigh University’s College of Business
2. Firms shifted focus from M&A to R&D

Specifically, we observed that when TMTs added female executives, they gradually shifted from a knowledge-buying strategy focused on M&As — which could be described as a more traditionally masculine, proactive approach — towards a knowledge-building strategy focused on internal R&D, which could be described as a more traditionally feminine, collaborative approach.

Our analysis suggests that this shift was a direct result of firms’ increasing aversion to risk, as we found that when a TMT experienced a one standard deviation increase in propensity for risk-taking, the likelihood of doing an additional M&A the following year increased, on average, by 10%, while TMTs that became less open to taking risks were significantly less likely to engage in M&A activity. Conversely, we found that after women were appointed to senior positions and firms began to exhibit higher levels of both openness to change and aversion to risk, firms reported an average 1.1% increase in R&D investments — and the average total R&D investment of the companies in our sample was $6,538 million, so a 1.1% increase is substantial.

3. The impact of female appointments was greater when women were well-integrated into the TMT.

Finally, we found that the more effectively female executives were able to integrate into the TMT, the greater the impact they were likely to have on its decision-making. There are two key factors that can influence this:

  • Whether she’s the only woman: We found that adding female executives to the TMT only actually changed C-suite thinking in cases where the executive team already had at least one woman. This may be because teams that already had a woman in the C-suite were more comfortable working with and including female executives, reducing the obstacles facing new female appointees.
  • Whether she’s one of many new appointees: We also found that larger shifts in thinking occurred when the new female executives were part of a smaller cohort of new appointees. In other words, if a firm promoted 10 men and 2 women to senior roles, we would see less of an impact than if a firm promoted 5 men and 1 woman. This could be because incumbent senior managers may feel more threatened when a larger group is promoted into their midst, leading them to be less trustful and less welcoming of the newcomers, and thus limiting new executives’ ability to contribute effectively.

Importantly, we measured all of these metrics both before and a full year after female executives were appointed to the TMT. This ensured that we were actually observing the effect of adding women to the C-suite, as opposed to simply documenting trends that were already in play before the addition of the female executives. We also controlled for other factors that may have correlated with changes in C-suite makeup, such as product strategy, R&D investment levels, and female board representation, to isolate just the effects of adding women to the TMT.

Why Is Having Women in the C-Suite So Impactful?

While our study focused simply on demonstrating these causal relationships, there are a few potential hypotheses we can offer based on prior research that could start to explain the root causes behind our findings.

First, a look at many women’s paths to executive positions sheds some light on why these leaders might simultaneously court change and avoid risk. To advance to the highest corporate levels, many women need to walk a difficult tightrope: They often learn to stand out by promoting novel strategies in an effort to overcome stereotypes of timidness, but at the same time, the hyper-visibility that comes with being the only one of an underrepresented group drastically increases the professional costs of making mistakes, and so they learn to carefully weigh the benefits of their innovative proposals with the risks of potential failure. Based on this common experience, one could expect TMTs to become more focused on balancing innovation with risk mitigation as more women join their ranks (…)”.

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