Female CEOs get appointed when the job is tough but then endure
When Ilham Kadri took over as CEO of Solvay in October 2018, the stock price fell. This is exactly what research would have predicted; the ‘glass-cliff’ effect holds that women tend to be appointed as CEOs in precarious situations.
It explains the low rates of appointment of female CEOs (because they are considered for only a subset of CEO openings − those in which the job is tough).
Michelle Ryan and Alexander Haslam, two professors at the University of Exeter who coined the phrase ‘glass cliff’ 17 years ago, observed: “It appears that women are particularly likely to be placed in positions of leadership in circumstances of general financial downturn and downturn in company performance.” In this way, such women can be seen to be placed on top of a glass cliff.
Nominating a female CEO has shown to lead to negative investor reactions. Firms that appoint female CEOs trade at a 2% average discount on the day the appointment is announced. This could be a result of the secondary sense-making that happens, given the rarity of the event.
Data indicate that female CEO appointments draw on average three times more media attention on the day of an announcement, compared to male CEO appointments, all else held constant.
When newly appointed females receive high levels of media coverage, they are at great risk of garnering unfavorable reactions among investors. Male CEOs, on the other hand, reap market rewards for the same levels of heightened media attention. Thus, while visibility and attention appear to legitimize incoming male CEOs in the eyes of investors, they act as a liability for females.
Hedge funds and activist investors – minority shareholders – typically target companies that they think are underperforming. They seek to profit by changing the company’s strategy (and, in order to do so, also its management).
One such example of an activist is billionaire Nelson Peltz, who has targeted women-led enterprises like PepsiCo (Indra Nooyi), Mondelez International (then managed by Irene Rosenfeld) and DuPont (when it was led by Ellen Kullman).
But can this be ending? On 27 January 2021, Walgreens’ stock price got a 4.5% boost after the announcement that Starbucks’ Rosalind Brewer was to take over as the pharmacy chain’s new CEO.
Sadly, it seems unlikely that we have moved on. Society still works with gender schemas – culturally bound, unconscious assumptions about men and women. One such assumption is that women are incompetent until proven otherwise. It’s the opposite for men.
So, from the start, women are not perceived as leaders. If a woman is successful, it’s because she’s a hard worker, or was lucky; if she fails, it’s because she’s incompetent. If a man succeeds, it’s because he’s competent; if he fails it’s because of bad luck or a scandal.
As a result, gender schemas consistently overrate men and underrate women. In fact, self-assessment studies show that men and women do the same to themselves. Women tend to evaluate themselves two points lower than reality, while men will evaluate themselves two points higher.
Quite apart from the fairness issue, or the impact on the poverty cycle, the gender gap affects company and country competitiveness. The lower the gender gap, the higher a country’s competitiveness. Board, top-management and CEO appointments are places where we see this gender gap most persistently.
Board and top-management composition continues to be overwhelmingly male. In the European Union, women made up 28.7% of the board directors of the largest publicly listed companies in 2020; in the US, women hold 20.2% of directorships of the Russell 3000 Index.
As far as CEO positions are concerned, women held 4.7% of CEO positions of publicly listed companies in 2019 in Europe and 5.8% of the S&P 500 listed companies in the US in 2020.
A number of recent studies document the positive impact of women’s membership on boards in terms of company performance, for example through how women bring a fresh perspective to complex issues. Furthermore, compared with their male counterparts, women board members are more likely to take active roles, challenging issues and asking difficult questions.
Research also indicates that women may bring a deeper understanding of certain markets and of consumers than their male colleagues, and that women tend to be more flexible and better able to manage ambiguous situations. So when will women actually get appointed to positions of influence?
While women may be appointed CEOs when the going gets tough because the board might have “nothing to lose”, studies have also found that female CEOs stay in their positions on average much longer than their male counterparts. This may be influenced by firms’ reluctance to incur the publicity of terminating a female CEO, but it could also simply be related to their ability to manage ambiguity, be resilient and take calculated risks – at least this is what a recent study on “bolstering the female CEO pipeline” found.
While this means that gaining initial access to new positions is tougher for women, once they have been given the opportunity to prove they can do it, they are more likely to be in those positions of power for longer.