New Research Illuminates Investor Bias Against Female CEOs

New Research Illuminates Investor Bias Against Female CEOs

We’re finally paying some real attention to workplace equality.

Nonetheless, while there is increased focus on the importance of having ladies at the top, companies with women at the helm aren’t publicizing their female leadership more heavily. Northwestern University’s Kellogg School of Management conducted an extensive study of over 8,100 CEO positions in the nation; their findings, published earlier this summer, indicate that, when a CEO appointment garners a good deal of attention and is shared widely by media outlets, there is often a correlated drop in the company’s stock.

The study was conducted by Ned Smith, Kevin Gaughan, and Jason Pierce, and grew out of a disparity Smith noticed. According to a profile by Anne Ford for Kellogg Insight, Smith and his co-authors had observed a confusing disparity; research has proven, time and time again, that companies benefit enormously when run by women, but investors seem to respond negatively when the hiring of a female CEO is announced. According to Ford, Smith’s research began with this question: “are those investors simply unaware of the benefits of female CEOs, biased against women in leadership positions, or both?”

Having women in charge does behoove organizations. In a 2011 study conducted by researchers at the Universidad Carlos III de Madrid, data showed that, in companies that have women in managerial roles, “more democratic decisions are adopted,” the culture allows for greater communication and workplace interactions, and employees report receiving higher quality and more personalized feedback. Why, if women are proven to be effective, highly-qualified leaders who are often more beneficial to their organizations than their male counterparts, would investors balk at their C-level employment?

The team was interested in understanding where the discrepancy comes from, and set out to investigate what affect the media’s reporting of hirings might have on the companies themselves.  The team ultimately concluded that media buzz increases the likelihood that investors respond poorly to a new female CEO, while they respond positively to media coverage of males in leadership positions. Smith and his team wanted to ensure that the investors’ response wasn’t due to any factor other than their own gender-based biases, so they looked closely at how the media reports male and female CEO appointments. They found no large differences in the way that these women and men are spoken about by the press, so, it seems, investors are reacting to the news itself rather than to the way it’s being told or marketed.

The Kellogg researchers do account for the particular role of investors and the ways in which their fiscal responsibilities likely impact their points of view. For instance, Ford points out in her Insight article, investors look to other investors’ opinions when making decisions about how and where to spend their money. If an investor who holds no particular gender-based bias believes fellow investors may react negatively to a female’s appointment, he or she is likely to react negatively, not necessarily because of the news itself, but because of how they believe peer investors will react to it. This is something the study calls “second-order sensemaking,” a phenomenon “whereby investors interpret not only the meaning of the executive appointment but also the meaning of the increased attention surrounding the appointment.”

Interestingly, and perhaps most upsettingly, investors don’t seem concerned about the appointment of women — just about the attention said appointments often garner. As Ford describes it: “investors can reward the appointment of a female CEO, but only if Ms. Chief Executive Officer does not get too much press.”

Even the researchers themselves describe their findings as “depressing,” as they offer concrete proof that companies where women are hired or promoted to CEO positions would do better to keep the news to themselves a bit. We’ve made great strides — the fact that enough women have become CEOs of major companies for this study to take place in the first place is evidence of our societal progress — but our attitudes have a long way still to go. We’ve made room for women in the boardroom, and we might even acknowledge the great benefits our companies will reap from their leadership, but we’re still not ready to applaud them for being there or even to offer the adequate support they deserve.

I would like to believe that, with time, this will change as investors grow more accustomed to the idea of women receiving the attention they deserve and feel less threatened by their acclaim. In the meantime, here’s hoping this sheds light not only on this media-investor phenomenon, but also begs us to take a closer look at just how deeply our biases can cut.

Image courtesy of Getty Images.