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Female executives in Fortune 500 firms

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Corporate ladderAlthough women remain substantially under-represented in the top echelons of large corporations, a non-trivial presence of female executives has emerged in recent years. Here, we focus on the firm characteristics that predict the sex of the executive office holder, classifying the plausible firm characteristics that could explain the presence of female executives into four explanations: sector, size, stability, and scandal.

A recent study’s findings revealed that women are less likely to be chief executive officers (CEOs) and chief operations officers (COOs), but more likely to be chief corporate officers (CCOs) and general counsels (GCs). Female executives are less likely to be present in the construction sector, but more likely to be present in the retail trade. Firms with greater assets and sales growth are less likely to have female executives. Firms that have experienced a scandal in recent years are more likely to have female executives. However, the nature and quantity of scandals do not have significant effects.

The study

The study examined the role of firm characteristics in predicting the presence of female executives in Fortune 500 firms.

While a rich literature examines the organizational sources of gender inequality broadly and among middle managers, there has not been a great deal of research on the organizational predictors of the presence of female executives. The study provides some of the first empirical results on the firm characteristics predicting the presence of female executives.

Analysis shows that women are less likely to be CEOs and COOs relative to executive vice presidents, and more likely to be CCOs or general counsels. Female executives are somewhat less likely to be present in the construction sector, and there is some evidence that they are more likely to be present in the retail trade sector.

These findings are consistent with previous research showing women are more likely to be managers in the service sector and less likely in male-dominated industries. It is specifically retail trade where women executives are relatively more common, and that women executives are quite unlikely in the male-dominated construction sector.

Firms with greater sales growth are less likely to have female executives. This is consistent with the theoretical discussion that suggests that “positive” instabilities or improvements like increases in profits, sales, and revenue have very different effects than negative instabilities like declines in profits, sales, and revenue. Most likely, sales growth allows firms to maintain the status quo and continue longstanding hiring and promotion practices that have historically tended to advantage men. By contrast, declining sales function as negative instabilities or turbulence that trigger a need for change among executive offices.

Unstable environments provide an opportunity for women to attain leadership positions because the risk of failure is higher. This has been referred to as a ‘glass cliff’ because women, rather than men, are put in precarious and high-risk leadership positions.

Previous studies have demonstrated a greater likelihood of selecting a female leader when firm performance has been declining. Because executive positions in unstable firms are likely to be less prestigious, the competition from male candidates may be less intense.

Turbulence

Turbulence – within organizations, across industries, or the economy – significantly affects the career trajectories of female finance executives, creating risk, but also mobility and advancement opportunities. In a previous McKinsey and Co. survey of 800 business leaders, it was found that women leaders have a competitive edge in or after a crisis mainly because women were more likely to inspire others by presenting a compelling vision of the future and to define expectations and reward achievement targets.

“It appears that there is a generalized effect of crisis and turbulence on the appointment and promotion of women.”

Scandal

In the wake of a scandal, the corporate social responsibility of a firm may be called into question. As a response, female executives may be installed strategically to signal that firms are attempting to become more “socially responsible.” In a similar vein, after a racial discrimination lawsuit, firms respond to external pressure by becoming disproportionately likely to promote African-Americans into management positions.

The visibility of a scandal and the public perception of mismanagement should pose a particular threat to executive office holders, and thus create opportunities for appointments of women.

Firms that have experienced a scandal in recent years are more likely to have female executives. Though the number and type of scandal do not seem to matter, the crisis-level instability that scandals represent results in an opening that enables the appointment and promotion of female executives. This instability could be the result of ‘glass cliff’ processes or the declining desirability of executive offices in firms that have experienced crises.

Because the particular type of scandal doesn’t matter, this effect is not simply due to particular financial, public relations, or legal challenges. Rather, it appears that there is a generalized effect of crisis and turbulence on the appointment and promotion of women. As a result, turbulence deserves even greater attention as an important organizational context that influences diversity and equality in the workplace.

Four ways to increase the presence of female executives

The study proposed four general ways that firms can increase the presence of female executives.

Firstly, firms can search effectively for more female executives from legal divisions. As women are better represented among general counsels, perhaps this could be a productive pipeline for CEOs. Because candidates for CEO positions are often expected to have profit and loss experience, firms should consider job rotations for female general counsels so that they obtain experience managing profit and loss units.

Secondly, the patterns across sectors show that construction firms will need to search outside their industry to find potential female executives, and firms may find a pool of female executives in the retail trade sector. Because a large share of executive offices are filled by external candidates and ‘glass ceilings’ tend to be less prohibitive for external hires, firms and their search agents could benefit from identifying candidates with legal backgrounds, from the retail trade sector, and from smaller Fortune 500 firms. Of course, such women will likely have faced a series of cumulative disadvantages relative to their male counterparts. Thus, firms will have to change the trajectories of such women and enable them to make up for lost ground with promotions from these backgrounds to the highest offices.

In addition, firms need to ensure that promotions occurring in legal divisions, the retail trade sector and at smaller Fortune 500 firms involve real increases in responsibilities and opportunities such that female candidates emerging from these settings will be competitively prepared for the highest offices.

Thirdly, instability provides an opening for firms to break from the status quo and install female executives with less resistance. Perhaps, because instability creates space for change, firms can “profit” from declining sales and scandals to overcome organizational inertia and search outside established routines for change agents. Perhaps, this instability provides legitimacy to appointments of new executives that do not fit the socially constructed expectation for how an executive should look.

Fourthly, we suggest some caution about the effectiveness of size-related bureaucratic factors in elevating women – within the specific world of the Fortune 500. By sampling only Fortune 500 firms, the target company analysis sharply limits the range of firm size. However, our intention was not to validate the effects of firm size for gender inequality in firms generally. Rather, we assessed if firm size matters within this select (and salient) sub-sample of all firms.

A persuasive literature convincingly demonstrates that large firms have formal hiring practices, internal labour markets, and bureaucratization, and these factors are associated with greater opportunities for female managers. The firms in our sample were much larger, and probably more bureaucratic, than typical firms. Yet, once a firm crosses the high threshold of being in the Fortune 500, the effects of size are less clear – at least for female executives.

May 2011
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This is a shortened version of “Sector, size, stability, and scandal - explaining the presence of female executives in Fortune 500 firms” which originally appeared in Gender in Management: An International Journal, Volume 26, Number 1, 2011.

The authors are David Brady, Katelin Isaacs, Martha Reeves, Rebekah Burroway, and Megan Reynolds.