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It makes financial sense for firms to address gender bias in hiring

Date:08 January 2018
Samuele Murtinu is associate professor in the Department of Innovation, Management & Strategy at the Faculty of Economics and Business, the University of Groningen.
Samuele Murtinu is associate professor in the Department of Innovation, Management & Strategy at the Faculty of Economics and Business, the University of Groningen.

Women earn more than 60 percent of university degrees in Europe and the United States. But only 6.4 percent of chief executive officers of Fortune 500 companies are women.

Assuming that talent is randomly and uniformly distributed between women and men, this means something is skewing hiring practices. If there were no gender discrimination in the hiring of managers, in equilibrium, men and women should be hired as managers in equal proportions.

It is important to analyse gender bias in hiring, not just because the topic is interesting in itself, but because it may have a dramatic impact on a firm’s productivity.

Over the past decade, organisational economics literature on management practices has shown that management is incredibly important for a firm’s productivity. So-called ‘hard inputs’ -- capital, labour, and materials -- are vital. However, ‘soft input’, or management, accounts for more than 30 percent in variance in productivity across firms.

Part of management is leadership style, and this is an area where gender matters a lot. Leadership style is strongly related to the gender of the manager. Women managers are in fact perceived as more nurturing, democratic, cooperative, people-oriented, inclusive and participatory; less task-oriented, hierarchical, and less pushing on goal-setting, structure, and performance.

These characteristics could be conducive to a higher firm’s innovation performance, and thus to a higher productivity. In fact, the above characteristics lead women managers to keep communication channels open, share decisions with their employees, support the diversity of perspectives within the organization, and build trust that fosters the exchange of knowledge and information across the organization.

Moreover, women managers are likely to be more keen in multi-tasking. That means they face less opportunity costs when switching from one task to another, making for more efficient management. Also, given that women managers anticipate obstacles and frictions in labor markets, they translate this into a higher ability in managing informal activities, so they can contribute to the managerial professionalization of the firm.

It is worth noting that the above characteristics may also hinder the innovation performance if the risk aversion of women managers is higher than that of male peers. But the empirical evidence on this issue is inconclusive. This is because women managers are not random women picked from the population, but selected women who “broke the glass ceiling” and want to compete with men in executive positions.

Finally, another element that could hinder the positive contribution of women managers on corporate innovation is given by excessive scrutiny from male peers and stakeholders. These latter could think that management is a “boys game” and perceive women as “not being up to the situation”.

Future research should focus on understanding under which conditions women leaders can maximize their contribution to innovation performance, and investigate group dynamics. There could be several effects at play:

  • tokenism, i.e. a low proportion of women are simply token and cannot exert an influence on management teams’ decisions;
  • critical mass, i.e. a certain proportion of women is necessary to make women managers’ decisions effective within the management team;
  • within-gender and cross-gender conflicts, i.e. a high proportion of women may lead to conflicts that are detrimental to innovation performance;
  • selection: the last women added to the management team could show a lower quality as compared to the first ones; in other words, the first women who join the management team are those who really broke the glass ceiling because of their talent.

This latter argument has strong policy implications because legal quotas within companies could be detrimental for their performance. This is either because of fewer incentives for women in investing in their own human capital and show their talent without the help of quotas, or because companies are constrained to hire women who are not necessarily the best managers in the market.

Contact: Samuel Murtinu