Do Women Make Better CEOs Than Men?
June 1, 2017
Although many people, including certain twitterers that indecipherably tweet late at night, like to lie about numbers, numbers themselves don't lie. And when it comes to creating returns for shareholders, numbers say that female CEOs significantly outperform their male counterparts.
S&P 500 businesses now run by women generated a median total shareholder return of 18.4% in 2016, compared with 15.7% for those commanded by men. Returns at female-led firms outperformed male-run companies in three of the previous five years.
As a result, female chiefs are rightly outearning male chiefs.
In an unusual reversal of the gender pay gap, female chief executives at some of the largest U.S. companies repeatedly outearn their male counterparts. Last year, 21 female CEOs received a median compensation package of $13.8 million, compared with the $11.6 million median for 382 male chiefs, according to a Wall Street Journal analysis of S&P 500 leaders who held the job a full year.
However, while they're earning a fair wage, female CEOs are still severely underrepresented at the top of org charts.
The total number of women running S&P 500 companies held steady from the previous year’s analysis at 28, including seven women who retired or held the job less than a year, and remains at roughly 5% of the total. But for the first time in The Journal study’s 28-year history, three of the 10 highest paid executives in the overall sample are women.
Which is relatively good news for women. And yet, there are still two questions that need to be addressed: Since female chiefs perform better, why aren't there more of them? And why exactly do female CEOs perform better than male chiefs year after year?
As for that first question about why there aren't more female CEOs, that's the several-billion-dollar question; the answer remains elusive. Of course, there are a many opinions on what, in fact, is holding back women from rising to the top. And perhaps the four prevailing opinions are: 1) it can be difficult for a woman to rise the company ranks if they also want to have a family (the can women have it all? issue); 2) the discrimination that women still face in the workplace (the Fox News issue); 3) the stigma that society still isn't ready to have women in charge (the still no female POTUS issue); and 4) women are thought to undervalue their strengths (the confidence gap issue).
The way I see it, the true answer is some combination of all four. That is, they all play a part.
As for the second question about why exactly women perform better than men in the CEO role, there's also no definitive answer. One opinion is since it's very difficult for women to rise to the top of an organization, those that make it are superstars.
Most of the 21 female leaders advanced into their roles within a company rather than getting recruited. “These women must be exceptional” because so few reach the corner office, said Heidi Hartman, president of the Institute for Women’s Policy Research.
And there are others that believe it has to do with diversity. As study after study shows, the more diverse an organization, the better it performs. And those organizations that have women in charge are likely to be more diverse, due to what some like to call the pipeline effect.
As for why diverse organizations outperform homogenous ones, the thinking is that a diverse group of decision-makers make better decisions than homogenous groups (and the research backs this up). Even random samples of people that comprise diverse groups have been shown to make better decisions than supposed experts who make up homogenous groups.
Decades of research by organizational scientists, psychologists, sociologists, economists and demographers show that socially diverse groups (that is, those with a diversity of race, ethnicity, gender and sexual orientation) are more innovative than homogeneous groups.
It seems obvious that a group of people with diverse individual expertise would be better than a homogeneous group at solving complex, nonroutine problems. It is less obvious that social diversity should work in the same way—yet the science shows that it does.
Yet another opinion, one that I also hold (and have written about previously), is that women are, in general, better at navigating risk than men. You might call this ess risky; I call it smarter. And if you don't believe me, let's look at the numbers.
The following comes from a Wall Street Journal interview with Sami Vähämaa, an accounting and finance professor at the University of Vaasa in Finland, about a study published last year in the Journal of Business Ethics (a journal I think it's safe to say the U.S. Tweeter-in-Chief has never cracked).
Of the 7,000 U.S. commercial banks we examined, those with female CEOs and chairmen held about 5% to 6% more equity capital than male-led banks and had lower default risk.
This should make these banks safer. This is especially true for smaller banks, or those with total assets below $770 million. Smaller banks are much more vulnerable to external shocks than larger banks. They don’t have the capital or the global diversification, so if something goes wrong, it is especially important that they have more equity capital.
There is strong evidence that banks with female CEOs were less likely to fail during the financial crisis. Indeed, male-led banks were six to seven times more likely to fail.
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