16 May 2017 by Scarlett Brown
Questioning assumed correlations between gender and risk attitudes in senior roles
We are now at a stage where diversity is a commercial imperative, but new research by Grant Thornton International finds that the number of women in senior roles has increased by only 1% since 2016, and that the UK trails behind other countries, with only 19% of senior roles held by women.
The research also reveals how senior leaders look at risk and reward, challenges gender stereotypes about risk, and finds evidence for the ‘glass cliff’. This has significant implications for board appointments and the kinds of skills that diverse boards of the future will need.
“In part due to an increased focus on regulation and risk since the 2008 financial crisis, risk backgrounds are increasingly important for boards”
Although gender and risk became a big part of companies’ agendas in the financial crisis, it is more crucial than ever in volatile macroeconomic and political climates. It is important to understand how risk relates to gender; where there is evidence for a connection and where there is not.
We know that risk is business critical. In part due to an increased focus on regulation and risk since the 2008 financial crisis, risk backgrounds are increasingly important for boards. Risk is also often a male-dominated area – senior roles in technical risk, cyber risk and financial risk tend to have more men.
Since 2012, I have been conducting research into gender diversity on boards, looking at the influence of the ‘Women on Boards’ initiative in the UK, and the effect it has on how directors are chosen. During that time I often found that individuals with a C-suite level risk background, whatever their gender, were highly sought after for non-executive board roles.
But risk is also strongly tied to gender stereotyping. Media reporting – particularly when covering crises – is full of stereotypes about gender and risk. The global financial crisis in 2008 was a pivotal moment for the ‘business case’ for gender equality.
Analysis of the crisis often attributed it, in part, to testosterone-heavy, risk-taking banks and pointed out that women were largely missing from these environments.
Christine Lagarde’s famous quip that ‘if Lehman Brothers had been Lehman Sisters, today’s economic crisis clearly would look quite different’, had real resonance. This leads to women being seen as solutions to the problem, often because of the stereotypical assumption that they are more risk-averse than men.
“The connection between gender and risk-taking is inconclusive at best”
Although this is a useful idea in terms of talking about gender inequality, it often does not come with evidence. The connection between gender and risk-taking is inconclusive at best. Recent research looking at US firms between 1996 to 2010 found that boards with a higher proportion of women were no more likely to be risk-averse than those with a higher proportion of men.
Although academic literature is rich with studies on gender differences regarding risk-perception, it speaks comparatively little about how men and women categorise and manage risk in a business context.
The ‘Grant Thornton International Women in Business’ research looked at business leaders’ perception of risks – through asking them to rank different kinds of risks – and found that men and women’s responses were remarkably similar.
Women did not identify more risks than men, in fact in eight of the ten categories men saw higher risk than women (if women were more risk-averse, we would expect them to identify more), and they were not found to categorise risks differently.
From the sample of 5,500 male and female business leaders, men were more likely to see risk when considering issues affecting economic, political and social change and women were only slightly more likely to see high risk in security and competitor activity.
Interestingly, an area where a gender difference was found is how men and women prioritise their responses to risk. At times of risk, both men and women are focused on running the company smoothly, convening board meetings and analysing the commercial impact of risk.
“Women are more likely to be recruited to leadership positions that have a higher chance of failure, occupy more precarious positions, and are subject to more criticism and scrutiny”
However, women are less likely to prioritise alerting staff and customers, and are more likely to advocate gaining more information before taking action. One explanation is that women are less likely to make decisions quickly and more likely to weigh up options before acting – something that could be interpreted as a kind of risk aversion.
It could also be explained in part by the ‘glass cliff’ phenomenon – women are more likely to be recruited to leadership positions that have a higher chance of failure, occupy more precarious positions, and are subject to more criticism and scrutiny in these jobs. Protecting their reputation and making more measured decisions may therefore be more important for women in senior roles, and affect their approach to risk.
Conversations about gender diversity are moving on fast. Whereas I used to hear arguments focused on the ‘business case’ – having women in senior roles is good for businesses’ bottom line – now, commitment to gender diversity is a commercial imperative.
Increasingly investors and external stakeholders ask companies whether they have gender diversity, and if not, why not? A lack of gender diversity tells stakeholders and shareholders something about companies and their culture and raises questions about what kind of decision-making is taking place in those boardrooms.
Regulatory and compliance changes are turning up the heat too. With the Financial Reporting Council planning changes to the UK Corporate Governance Code this year that are likely to include gender diversity as a measure of board effectiveness, diversity is becoming a key strategic issue.
Adding to this, the Government and wider stakeholders are putting more focus than ever on corporate governance, and the recently-mandated gender pay gap reporting initiative is also coming into effect.
On the other hand, we are also in danger of suffering ‘gender fatigue’. The ‘Women in Business’ report points out that gender diversity is at risk of tailing off as organisations often stop after doing something, thinking they have done enough.
We saw this with women on boards in the UK. In the year after Lord Davies stepped down from the Women on Boards steering group and the target of 25% had been met, the rate of female board appointments reduced for the first time since 2011. Success, unfortunately, can lead to complacency.
Success can also lead to a backlash. Challenges to ‘positive discrimination’ can be significant, particularly in areas where there are few roles or precarious jobs. This is often assumed to happen at lower levels, but I also found evidence for a backlash in my research on UK boards.
Men seeking non-executive director roles on boards often told me it is now far more difficult for men to be appointed and that it is ‘easier for women’.
This conviction is both interesting and concerning, as although there are more women being appointed now than there were before 2011, more than 70% of new non-executive director roles still go to men.
Beliefs about gender difference are pervasive, and it is important that stereotypes and assumptions are not used as the basis for gender diversity initiatives. Similarly, it is important to highlight that gender diversity is often just one part of wider challenges: initiatives need to focus on making workplaces better for all employees, businesses more attentive to their stakeholders, and boards more effective decision-makers.