Wednesday, April 4, 2018

#mefirst: Female Executives Are Superior to Male Executives in Societies that Discriminate against Women

Here is an unusual business idea. Suppose you are a business in a society that discriminates against a group of people, such as women. Why not hire and promote members of that group—not because you can pay them less, but because their talent, dedication, and way of thinking make them different than others in ways that can be beneficial to your organization? Is this done anywhere, and does it increase organizational performance?

In a recent paper in Administrative Science Quarterly, Jordan Siegel, Lynn Pyun, and B. Y. Cheon looked at firms that promote women into upper mid-level and senior managerial positions in South Korea. At those levels, there are few women in a typical Korean firm because of a significant social bias against women having roles of responsibility outside the family. Using the best data and methods available to us for analyzing firms’ profitability, they could precisely measure the effect of having female executives. Add 10 percent women at the top level, and you will get a 1-percent increase in returns on assets. In case you wonder, a 1-percent increase in profitability is a lot of money, and it is easy to add 10 percent female executives because most Korean firms don’t have any.

What is going on here? Obviously, the increased profits aren’t explained by what female executives are paid compared with male counterparts. Executive payment (at least in Korea) adds up to only a tiny fraction of the profitability we are seeing here. Siegel, Pyun, and Cheon asked observers who know how businesses operate, and they got some interesting answers. The most important is that women think differently, and think more independently, than men. The different way of thinking is typical of people who have different roles in society, and it is the reason we often want decision-making groups to be diverse. More kinds of people mean more ideas, and diversity is kind of low when the average executive team has 2.5 percent women.

Independent thinking may seem like a somewhat radical explanation, but it makes sense in this study for both a general reason and a more specific one. In general, people who are discriminated against need to think on their feet because doing well in the workplace is not something that happens based on who they are: it depends on what they do, and in particular what they do differently. The promoted female executives did well because they were special. Also, there was a specific reason that independent thinking led to greater success in this study: young men in Korea have to serve in the military, where independent thinking is strongly discouraged and following orders is encouraged. Female executives have a creative advantage over male executives in this context.

So if firms in such societies can gain so much advantage by promoting women, why don’t they all do it? There are many reasons for not breaking with a norm of discrimination, starting with ignorance. Firms don’t know that female executives are superior (which is why this research was needed), and they may not even recognize that there are few women among their executives. After all, being male is normal for an executive.

Still, some firms in this study did hire and promote female executives, and many of them were foreign. Does this mean that discrimination is absent in the homelands of these foreign firms? No. Most of the foreign firms were multinationals with hardly any women in their home country among their top executives. Discrimination against women may have been weaker in their home country than in Korea, but just as importantly, they had discovered the benefits of promoting women in Korea. Discrimination in society seems to be easier to overcome if it is costly—not a highly virtuous conclusion, but one with some hope at least.

It was fun for me to read this research. I had the idea of doing a research project like this a long time ago when I worked in Japan. I was too busy with other projects to do it and did not check whether there were data available that would have made it possible. Now it has been done, and the results confirm what I expected.

Jordan, Siegel, Pyun Lynn, and B. Y. Cheon. 2018. "Multinational Firms, Labor Market Discrimination, and the Capture of Outsider’s Advantage by Exploiting the Social Divide." Administrative Science Quarterly, forthcoming.

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