Saturday, June 29, 2024

Founders Forming Startup Cultures: Why Atypical Cultures Transfer Better

When a new venture is founded, does the founder create the culture? Much rhetoric from the founders of high-tech firms suggests they do – some even post manuals of the firm culture for others to admire and copy. But coming to think of it, the founders might be influential but still not important in the end. In any firm that scales the founder quickly becomes a small minority, and employees form the culture too.

So, which is it? That is the question answered in research by Yeonsin Ahn and me published in Organization Science. We looked at the cultures of information technology firms listed in Crunchbase and used descriptions of the firms at Glassdoor as data to do a linguistic analysis of their cultures. That way, we could compare the cultures of any firm, and we went on to detect how much the new venture culture was related to the culture of the previous employer of the founder. That’s because founders typically carry along the culture of their employer even when they try to create something new.

What did we discover? New venture cultures, on average, do not show much trace of the founder creating the culture. The keyword here is “on average” because the exceptions are very interesting. The first is atypicality. There is a wide range of organizational cultures also in technology firms, and there is a mix of more-or-less typical organizational cultures along with more atypical organizational cultures. Do employees like atypical cultures? That is hard to tell, but we know from the data that founders could more easily transfer atypical cultures than typical ones. Most likely this is because atypical cultures are more distinct, so employees can more easily notice the culture that the founder is used to and likes, and they can copy it.

Are there any other interesting effects? Yes, we made one more discovery. In general, cultures are not necessarily congruent – they contain internal contradictions that cannot be resolved, but instead lead to compromised or case-by-case choices. This is true of culture in general, and also of organizational cultures. We found that congruent cultures transferred more easily, again indicating that ease of learning the founder’s organizational culture makes the founder more influential.

So founders can create organizational cultures under the right conditions. The culture needs to be atypical enough to be recognized, and congruent enough to be easy to learn. A simple answer to a complicated question.

Ahn Yeonsin and Henrich R. Greve. 2024. Cultural Spawning: Founders Bringing Organizational Cultures to Their Startup. Organization Science, forthcoming.

Tuesday, May 7, 2024

Hiring Minorities Solves Our Discrimination Problem, Right? Wrong!

There has been long-standing discrimination in US workplaces against women and minorities of all kinds. The salary difference between men and women doing comparable work is well known, and so are the problems of getting hired and retained faced by people of color and immigrants. The solution mandated by many employers and recommended by others is to ensure that hiring new employees is non-discriminatory in job description, advertisement, and selection processes. This focus has proven effective in getting to fair hiring practices.

But, less well known, what happens afterward has not been fixed: promotion and even retention (keeping the job) show the same discrimination as hiring used to do. Why? This is where research by Tanya Y. Tian and Edward B. Smith in Administrative Science Quarterly provides some very compelling answers. They zoomed in on Black professors in a major research university – the employees most affected by discrimination and the workplace most serious about fixing this problem – and checked what happened after a period of fair hiring practices.

To understand their research, it is important to understand that evaluating professors’ productivity is not very different from evaluating other professionals like lawyers and consultants. Good output volume and quality measures are available and are used for retention and promotion decisions, and to some extent they are over-used compared to less measurable contributions because the decision to fire an employee may have to be defended in court. Another important feature of universities is that they contain a combination of standard and customized positions, and customization can be used to create positions that address the university’s diversity needs or to fit in Black applicants whose CVs do not exactly fit what might be sought for a given standard position.

And that’s where the problems begin. Both the customized positions and the general status of being Black and thus a signal of diversity mean that the employee has to produce more output along the less measurable dimensions, the ones that count less for promotion. Given that hours per day is a constant and junior faculty work as much as they can to begin with, Black professors are disadvantaged in the promotion process. The research showed that this was true. Also, it showed that their lower retention rate was because Black professors were disproportionately placed in non-standard positions. And this held true even when taking into account their research productivity – which didn’t matter because non-standard positions led to lower research productivity.

So fair inclusion is a good thing, except that it isn’t good when fairness happens only at the point of hiring, not later. This serious problem is not well known among employers or job seekers, and it urgently needs more attention. That is why research like this is important.

Tian, Tanya Y. and Edward B. Smith. 2024. Stretched Thin: How a Misalignment Between Allocation and Valuation Underlies the Paradox of Diversity Achievement in Higher Education. Administrative Science Quarterly, forthcoming.

Saturday, April 6, 2024

Firm Governance Advice: Why Math and Machine Learning Disagree

It has been a long time since agency theory started dictating management theory thinking about firm governance. According to this theory, management are primarily selfish and secondarily interested in firm profits and shareholder value creation. This makes them unreliable agents of the ultimate owners, the shareholders, so it is necessary to prescribe many medicines in the form of better surveillance of their actions and better alignment of their pay with firm outcomes. And so a small industry of governance research and advice has grown, resulting in many practices that are supposed to improve things.

Everything is backed by the mathematics of game theory and proofs showing that managers (well, CEOs primarily) will behave better if they are controlled. That makes the advice an undisputable fact except for one thing. The equations are not exactly the same as the practices, and there are many ways actual human beings will either fail to act according to predictions, as when boards do not implement the practices well enough, or will have counter-measures against the predictions, as when CEOs manipulate the board. So in a world of actual humans acting as directors on boards and CEOs of firms, does the advice hold true?

This is what we (Andrew Shipilov, Yeonsin Ahn, Timothy Rowley, and me) examined in research published in Journal of Organization Design. Our approach was simple. We had data on firm adoptions of 11 different governance practices and a series of firm outcomes, and we focused on Return on Assets, Debt, and Dividends distributed to shareholders. These are outcomes that shareholders care about because they concern profitability, risk, and money returned to the owners. We used modern machine-learning techniques to find out which of the practices predicted these outcomes best.

So, what did we find? The best way to summarize our findings is that what works in equations does not work in practice. Hardly any of the 11 practices had any effect on the three outcomes. Two that had effects – and independent audit committee improved profitability and director evaluations increased dividends – suggest that a major mechanism contributing to impact is whether directors have reason to pay close attention to the firm and counter-act selfish CEO actions. That is at least some encouraging news, though overall our findings suggest that much governance advice is hot air.

Shipilov, Andrew V., Yeonsin Ahn, Henrich R. Greve, and Timothy J. Rowley. 2024. The Impact of Governance Practices on Firm Outcomes: A Machine-Learning Exploration. Journal of Organization Design, forthcoming.

Friday, March 29, 2024

Life of The Disenfranchised Entrepreneur: Discrimination, Success, and Stigma

We love the stories of entrepreneurs who advanced from poverty to success and riches. How much do these stories reflect reality, and not wishful thinking? What are these stories missing? Recent research by Leandro S. Pongeluppe published in Administrative Science Quarterly examines a more modest – and so more realistic – story of social advance through entrepreneurship, and it offers a piece of realism and some important lessons.

The story of entrepreneurship being the path to success is quite realistic because poverty is often a result of labor market discrimination, so there is no way out except through entrepreneurship. Labor market discrimination is a powerful exclusion because employers discriminate against those who are visibly different: often minorities or women. In this research, such discrimination was against people living in the Brazil slums (“favelas”), who are easy to distinguish by their language dialect and address.
 

Entrepreneurship by the disenfranchised is not easy, though, and the whole foundation for the research was a set of programs teaching favela residents skills for forming and operating businesses. The skills were useful, because those who received the training were able to start businesses more often than their peers. Importantly, this happened even though those who received the training were no more likely to get a job after the training than those who did not—despite the fact that training someone for running a business also makes them more capable as an employee of a business. Labor market discrimination is a powerful exclusion.

So, with more entrepreneurship and higher income, after training we have a nice story of success, right? That’s where the traditional success story is incomplete. We are forgetting that discrimination against groups happens because they are not supposed to be successful, so when they succeed against the odds that’s wrong too in the eyes of others. They carry the stigma of their disenfranchised background in the favelas, and this stigma is imposed more strongly by others the more successful they are. More income means more prejudice and more stigma from those who are fortunate enough to be born to a middle-class life.

What to do? Obviously, training the disenfranchised for entrepreneurship is still right, and equally obvious it is hard, or impossible, to control the irrational responses of others. Even the old stories of entrepreneurs who advance from poverty are not enough. But we know the reason, of course. In the novels and the movies, those entrepreneurs looked just like the audiences. The stigma will not fade until we tell more stories of favela dwellers and minorities who succeed through entrepreneurship, and we learn to celebrate them too.

Pongeluppe, Leandro S. 2024. The Allegory of the Favela: The Multifaceted Effects of Socioeconomic Mobility. Administrative Science Quarterly, forthcoming.

Tuesday, February 27, 2024

Hire Those You Trust! But Actually It Is More Complicated

What is the relationship between trust and hiring? We all know the simple answer. Employers hire those who seem trustworthy, so trust and hiring are pretty much the same thing. But there is also a more complicated answer, and that one involves looking at how national cultures differ in the general trust levels. Suppose that two cultures differ in the level of trust – will employers in the high-trust culture hire more people than those in the low-trust culture? No, of course not, employers hire as many people as they need. But social trust levels still matter.

How they matter is the topic of research by Letian Zhang and Shinan Wang published in Administrative Science Quarterly. It involves a novel idea and some nifty analysis, and fortunately it is easy to summarize. Trust does not mean hiring more people, but it does mean hiring different people. The reason is that low social trust is associated with hiring for a specific job, with less expectation that the employee can develop new skills. High social trust means hiring for the firm, with an expectation that the employee can develop new skills and fill other jobs. High trust, then, means hiring for foundational skills rather than advanced skills. It means hiring an analyst for general math ability more than for skills in Laplace transformations.

This idea raises two questions. First, is it true? Using data on job postings from the European Union countries, Zhang and Wang found that it was indeed true. Employers in nations with high social trust hire based on more foundational skills than nations with low social trust. Moreover, the same multinational firm would hire more based on foundational skills in nations with high social trust than in nations with low social trust, so the same relation holds within employers as well. Job characteristics such as university education or work experience requirements reduced this effect but did not make it go away.

Second question, is it consequential? Well, look at the figure above. Nations in Europe differ quite a bit in social trust levels, as the horizontal scale shows (the range is from zero to one). The vertical scale is not so easy to understand, but perhaps it helps to know that a difference of 0.6 is less than the difference between attentiveness and mathematics (foundational skills), and electricity principles and Java (advanced skills). The figure shows that the average hire in each nation differs significantly by the trust level.

There are many possible consequences of these differences. We don’t yet know whether they all happen, but it is valuable to check each one. Hiring in high-trust nations means hiring for the long term and for multiple roles, giving greater room for personal growth and firm flexibility. Hiring in high-trust nations means less emphasis on specific expertise and credentials, so symbolic collection of certificates to get hired is unnecessary. Hiring in high-trust nations allows more diversity in teams doing a single task and better communication within teams, increasing creativity and productivity. Employers in low-trust nations may have lower access to all these benefits.

We do not know whether all these differences result from different levels of societal trust. Now that we know how societal trust changes hiring practices, we should be aware that they might exist, and both employers and employees might think of employment practices and careers differently.

Zhang, Letian and Shinan Wang. 2024. Trusting Talent: Cross-Country Differences inHiring. Administrative Science Quarterly, forthcoming.

Wednesday, January 31, 2024

Networks and Discrimination: Why Female Artists are Disadvantaged, and What They Can Do About It

It is not easy being an artist. Recognition of talent and creativity can be slow, sales only happen in small galleries, and initial sales are domestic and even local. The last thing artists need is discrimination in addition, but that is exactly what female artists get: a recent investigation showed that comparable paintings sell at a 42 percent discount if the artist is female.

Is there anything that can be done about such discrimination? This was the question that we (JungYun Han, Henrich R. Greve, and Andrew Shipilov) wanted to address with data on Korean artists and their exhibitions abroad. We found that female artists were less successful in exhibiting abroad, as expected, but that difference was not our main interest. Instead, we wanted to know whether we could identify anything in their careers that reduced or eliminated their disadvantage. We could.

An important step in the careers of many artists is a residency stay in which they share workspace in studios provided by the residency and also get to meet other junior and senior artists to gain inspiration and advice. Residency programs help artists succeed, which is exactly their purpose, but unexpectedly this was only true for female artists. Education in an elite art school provides top-notch technical training and artistic appreciation. Elite education helps artists succeed, which is exactly its purpose, but again there was a surprise: it benefited female artists more.

What is going on here? The best explanation for these two effects is not training, but social networks. Art residency programs and elite schools connect artists with others who can provide advice on how to approach galleries and even direct contacts to them. The best explanation for the male and female difference is that female artists have more to prove, so the benefit from a network tie is greater for them. In network effects we often see such effects – those who are accepted purely by who they are gain some benefit from a good social network, but not nearly as much as those who are discriminated against and need a social network to be introduced to the right people and become recognized for their achievements.

These effects offer clear advice for how to help women succeed in art, and probably also in other kinds of entrepreneurship and work. They also offer a warning to society because such differences can only exist because of discrimination.

Han J, Greve HR, Shipilov A (2024) The liability of gender? Constraints and enablers of foreign market entry for female artists. Journal of International Business Studies.

Monday, January 22, 2024

If Women Can’t Network and Women Can’t Move, Why is it Better for Women to do Both?

Among the many disadvantages that women have at work, here is one that is often overlooked: they have fewer opportunities to form beneficial networks, and even if they succeed, they gain less benefit than men. This matters greatly for their careers because network ties to coworkers help employees gain skills,learn about opportunities, and execute plans. A particular disadvantage is women’s problems in getting brokerage positions in network. A network broker is connected to people who are not directly connected to each other. Brokers gain separate pieces of information quickly and can quickly assemble them to form opportunities.

Why is it hard for women to become brokers? To begin with, it is hard for anyone because it requires reaching beyond the immediate work group. It is also hard because people are suspicious of brokers and may be reluctant to share information with them. In fact, the most effective brokers are those who are not known to be brokers. For women, these suspicions are especially strong because of the gendered belief that women maintain closer relations with proximate friends and coworkers. As a result, they gain less access to brokerage and less benefit from brokerage.

Changing jobs has many of the same disadvantages, even if the job change is just a reassignment ordered by the employer. But here is the interesting part: when women move, the brokerage disadvantages disappear. Both disadvantages. Women who move gain brokerage positions just as easily as men who move, and women who move obtain the same performance benefits as men who move. This is a new discovery from a paper by Evelyn Zhang, Brandy Aven, and Adam Kleinbaum published in Administrative Science Quarterly. Their idea, which turned out to be true, is that moving gives “license to broker” because network ties in the new workplace are necessary, and maintaining contacts with the prior workplace is expected – especially for women, who are supposed to be more stable network partners than men (again a gendered belief). So in this case two wrongs make a right.

Interesting? Let us not see this as encouraging information though. Even when workers benefit from gendered beliefs like this, the beliefs still create a warped workplace where opportunities and rewards are unfairly distributed.

 

Zhang,Evelyn Y., Brandy L. Aven, and Adam M. Kleinbaum. License to Broker: How Mobility Eliminates Gender Gaps in Network Advantage. Administrative Science Quarterly, forthcoming.