Recent studies of gender diversity in strategic leadership groups have reached contradictory findings. Some find diminishing benefits at higher levels of diversity. Michel Hermans, Melanie Lorenz and Marcelo J Alvarado-Vargas call for a more comprehensive view of diversity and leadership. They write that the best innovation results occur when both the board of directors and the top management team have a high participation of women.
The legal and political backlash against diversity programs reflects a deeper ideological debate about the role of social justice in organisational decision-making, where equity-driven approaches meet utilitarian perspectives. Many Fortune 500 companies announced they will review their diversity programs. This involves scaling back efforts to diversify the demographic composition of their workforce and leadership teams, and shifting their focus towards talent, merit, engagement and performance. In this evolving context, the much heralded “business case” for diversity has come under heightened scrutiny.
We draw on recent academic research to provide an evidence-based lens for how the gender composition of strategic leadership groups has varying effects on organisational performance. We show how the best innovation results come about when both the board of directors and the top management team have above average participation of women.
A nuanced picture
The business case for gender diversity refers to the benefits firms can reap from increasing the participation of women in historically male-dominated strategic leadership groups such as top management teams and boards of directors.
Because of their different life experiences and careers, women can bring to the team alternative strategic perspectives, diverse decision-making criteria and access to additional information. When the gender composition of the team changes, a shift in team-level cognition occurs. A large body of empirical research supports this logic, reporting associations between increases of gender diversity in senior leadership groups and firm-level financial outcomes such as profitability, sales growth and stock returns.
These studies generally use samples with a restricted range, where women represent between 10 and 20 per cent of directors or top managers on average. Thus, compared to firms that have no or very few women on their senior leadership groups, those with even a small amount of gender diversity perform better.
However, more recently, studies find diminishing effects at higher levels of gender diversity on boards of directors. Others yield inconsistent or non-significant results for top management teams.
Our recent article provides new insights, bridging these seemingly inconsistent results. Our sample comprised the most innovative public companies listed in the United States, with board gender compositions that ranged from 0 to 45 per cent, and top management gender composition between 0 and 56 per cent.
We find that in these strategic leadership groups, the association between gender diversity and innovation is curvilinear, following an inverted u-shape. At low levels of gender diversity, an increase in the number of women is associated with increased innovation. But as women’s participation approached 19 per cent for boards of directors and 25 per cent for top management teams, innovation levelled off and started to decline.
We attribute these findings to changes in interpersonal processes resulting from the group’s different gender composition. When very few women are top managers or board members, their ideas, information and approach to management will have only limited influence on innovation. When a critical mass is achieved, there’s a greater likelihood that gender-based subgroups will be formed. This will strengthen directors’ and top managers’ attention to new information and alternative perspectives and approaches. However, at high levels of diversity, additional information may become excessive. Alternative perspectives may reduce group cohesion and cause conflicts that undermine performance.
Business case for gender diversity
Our findings seem discouraging for an instrumental justification, or “business case”, for gender diversity in strategic leadership groups. However, we find that the gender composition of the board of directors conditions the effects of gender diversity in the top management team, and vice-versa.
This should not be surprising, given that developing and implementing an innovation strategy require collaboration between these groups on several tasks. For instance, the board of directors may work closely with executives to enhance managerial decision-making; top managers are increasingly involved in board committees; and CEOs are commonly board members.
More generally, decisions regarding what technologies to invest in and how to manage specific projects to obtain patentable outcomes involve high levels of uncertainty. These conditions compel the board and top management to share tasks such as strategic visioning, goal alignment and information processing.
Because of these collaboration requirements, the relationship between different strategic leadership groups becomes increasingly important. When their gender compositions are similar, the outcomes of their collaboration are positive. The poorest results occur when they have opposing gender compositions (high presence of women on the board of directors, low on the top management team, and vice-versa). When the gender composition of both groups is at average levels, innovation is somewhat stronger.
The best innovation results come about when both the board of directors and the top management team have above average participation of women. Simultaneous increases of gender diversity for top management and the board extend the initially positive effects. When diversity is one standard deviation above the average, firms obtained almost 60 per cent more patents from their innovation efforts. This means that a strategic leadership group’s gender composition not only has consequences for its own functioning, but also for interactions with other groups.
Towards a comprehensive view
Achieving these ratios requires the integration of currently separate agendas. Policymakers’ focus has been on board representation of women. Government-issued quota systems, however, do not pay attention to the development trajectory of female directors. Corporate decision-makers—especially human resources professionals—seek to hire and develop talented women into senior management positions, but their efforts do not include the board of directors.
Academic researchers have long emphasised separating the board of directors and the top management team as a condition for corporate governance. However, the past few years have witnessed growing interest in interfaces between different corporate groups or segments, such as the board of directors, the top management team and middle management. Some scholars have proposed to view organisations’ upper echelons as strategic oriented multiteam systems. We find that, within these comprehensive views, the “business case” for gender diversity in senior leadership positions continues to be favourable.
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- This blog post is based on A balancing act: Independent and interdependent effects of board of directors and top management team gender composition on innovation.
- The post represents the views of the author, not the position of LSE Business Review or the London School of Economics and Political Science.
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Michel Hermans is a Professor of Organisational Behaviour at IAE Business School, Universidad Austral in Argentina, and holds a Joint Appointment at EGADE Business School, Tecnologico de Monterrey, Mexico.
Melanie Lorenz is an Associate Professor of Marketing and the Director of the Behavioural Insights Lab at Florida Atlantic University.
Marcelo J Alvarado-Vargas is a tenured Associate Professor of Management at the University of Toledo (Ohio, USA).
