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Women Board Members + Strong Shareholder Protections = Higher Financial Performance

Kris Byron

The relationship between women on corporate Boards of Directors and company positive financial results is mixed, according to Syracuse University’s Kris Byron and Corinne Post of Lehigh University.

Corinne Post

To clarify conflicting data, they conducted a meta-analysis of 140 existing studies and found that women on corporate boards was related to positive financial outcomes in countries with stronger shareholder protections.

Companies with women on Boards and subject to rigorous shareholder protections reported higher accounting returns or firm profitability.

Richard Gentry

Accounting returns evaluate a firm’s efficiency in using assets to generate earnings and represent short-term financial performance, noted University of Mississippi’s Richard Gentry and Wei Shen of Arizona State University.

Wei Shen

Another financial performance measure in Byron and Post’s meta-analysis was market performance, defined by University of Chicago’s Richard H. Thaler as marketplace behavior that reflects expectations of a firm’s long-term value.

Richard Thaler

Women on Boards of Directors provide “diversity of thought and experience” and tolerate less financial risk.
As a result, female board members made stronger efforts to monitor the firms and to ensure strategy execution, according to Byron and Post.

Kathleen Eisenhardt

The team considered Agency Theory, proposed by Stanford’s Kathleen Eisenhardt, in her theory that Boards of Directors are “information systems” used by key stakeholders to verify organizational behavior.

Amy Hillman

These systems are influenced by Directors’ individual cognitive frames, derived from their diverse values and experiences, argued Arizona State’s Amy Hillman and Thomas Dalziel of University of Cincinnati.

Donald Hambrick

These diverse cognitive frames yield more favorable organizational outcomes only when teams “engage in mutual and collective interaction [and] share information, resources, and decisions,” according to Upper Echelons Theory (UET) developed by Penn State’s Donald Hambrick.
This means that women Board members affect group decision-making and financial performance when other Board members are willing to consider their diverse perspectives and experiences.

Thomas Dalziel

Strong shareholder protections provide “an information-processing stimulus that motivates (Boards) to leverage the decision-making resources (i.e., knowledge, experience and values) that women bring,” asserted Byron and Post.
From this, they concluded that strong financial outcomes occur in companies with women on their Boards of Directors in countries with strong shareholder protections.

Byron and Post’s analysis illustrates that diverse perspectives provide little benefit if they are not solicited and fully considered in a context of regulatory oversight.

-*When have you observed diverse perspectives associated with increased profitability and performance?

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©Kathryn Welds

Ethnic Diversity Reduces “Groupthink,” Economic “Bubbles”

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Despite progress in raising awareness about implicit bias and stereotypes, most people are less likely to trust recommendations and evaluations from people of different ethnic groups.

Sheen Levine

However, this bias may reduce the “herd mentality” that characterized recent price “bubbles” in U.S. housing and global financial markets, reported Columbia’s Sheen S. Levine, Evan P. Apfelbaum of MIT, Goethe University’s Mark Bernard, Texas A&M’s Valerie L. Bartelt, Edward J. Zajac of Northwestern, and University of Warwick’s David Stark.
They concluded that, “Diversity facilitates friction that enhances deliberation and upends conformity.”

Economic “bubbles” occur when the majority of traders, probably influenced by a type of “groupthink,” set inaccurate prices, leading to a mismatch between market prices and true asset values.

Irving Janis

Groupthink can occur when three conditions interact, according to Yale’s Irving Janis:

Group Cohesiveness
- “Deindividuation,” when group cohesiveness becomes more important than individual dissenting views,
Group Structure
- Homogeneity of group’s social backgrounds and ideology,
- Group insulation from feedback,
- Lack of impartial leadership,
- Lack of norms requiring systematic analysis and decision procedures,
Context
- Stressful external threats,
- Recent failures,
- Decision-making difficulties,
- Moral dilemmas.

Scott E. Page

A mathematical model, developed by University of Michigan’s Scott E. Page and Lu Hong of Loyola University, demonstrated that a wider range of viewpoints leads to less groupthink and more balanced decisions.

Diverse groups ran into fewer “dead ends” in developing solutions than homogenous groups full of smart individuals, who tended to think similarly.

David A. Thomas

Likewise, additional experimental evidence by Georgetown’s David A Thomas and Robin J. Ely of Harvard confirmed that identity-diverse groups can outperform homogeneous groups.
Group errors depended on group member ability and member diversity, expressed in the formula:

Collective Accuracy = Average Accuracy + Diversity.

To test the impact of group diversity on market “bubbles,” Levine’s group constructed experimental markets in Singapore and Texas, USA, in which participants traded stocks to earn money.

Evan Apfelbaum

More than 175 volunteers with backgrounds in business or finance were randomly-assigned to groups of six ethnically-homogeneous or ethnically- diverse participants.

Traders knew the ethnic composition of their groups, but they couldn’t communicate with each other.
In addition, their “trades” of dividend-paying stock during 10 rounds were anonymous.

Homogeneous groups set inflated selling prices, yet traders in those groups still bought the stock, resulting in increasing stock prices.

Mark Bernard

In contrast, traders in diverse groups refused inflated selling prices, so the stock price fell to approximately the price in an “ideal” market with “rational” traders.

When traders and other decision-makers come from similar ethnic, social, and attitudinal backgrounds, they tend to place undue confidence in others’ opinions and decisions, and tend not to subject them to rigorous analysis and scrutiny.

Valerie Bartelt

As a result, they may be more likely to accept prices and deals that deviate from actual underlying values.
Levine’s group concluded that “homogeneity…imbues people with false confidence in the judgment of coethnics, discouraging them from scrutinizing behavior.”

How do you mitigate “groupthink” in organizational decision-making?

©Kathryn Welds

Perceived Diversity = “Like Me”

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Christopher Bauman

Judgments of “diversity” are rarely completely objective: They are influenced by subjective elements, including the rater’s racial and ethnic group.
People tend to rate a group as “diverse” when it includes members of the evaluator’s race, found University of California, Irvine’s Christopher W. Bauman, Sophie Trawalter of University of Virginia and UCLA’s Miguel M. Unzueta.

Sophie Trawalter

Almost 1900 volunteers from diverse racial groups rated headshots of a company’s six-person management team for its “ethnically diversity”:

“Caucasian team” included six white headshots (100% white),
“Asian team” showed four white and two Asian people (mirroring the 66% majority of white people in the U.S.),
“Black team” featured four white and two black people (66% white),
“Asian + Black” team had four white, one black, and one Asian person (66% white).

Miguel Unzueta

Members of racial minority groups rated leadership groups as “more diverse” when they included members of their own racial group rather than members of other racial minority groups.

Participants rated groups as it “less racially diverse” when they did not include at least one member of their own racial group, and this “in-group representation effect” was stronger for African Americans than for Asian Americans.

Later, more than 1,000 volunteers read news articles about the prevalence of prejudice, then provided ratings.
They showed no “in-group representation” effect, suggesting that reading about how another minority group suffers from prejudice reduced raters’ self-referential evaluation bias.

These results indicate that people’s expectations affect perceptions of diversity.
Priming awareness and empathy for similar experienced encountered by other groups reduced in-group biases.

Jim Sidanius

African Americans, compared with other groups, frequently are judged as experiencing:

Lower social status,
More negative stereotypes,
More discrimination, reported Harvard’s Jim Sidanius and Felicia Pratto of University of Connecticut.

Felicia Pratto

In contrast, Asian Americans tend to be attributed higher status and as a result, report less discrimination than other racial minority groups.

Andrea Romero

Despite this advantage, Asian Americans have a lower return on their investment in education than Whites, even though they achieve higher levels of education and income than other racial minority groups, reported University of Arizona’s Andrea Romero with Robert Roberts of University of Texas and another group led by UT colleague Myrtle P. Bell with David A. Harrison and Mary E. McLaughlin.

Myrtle P Bell

Higher levels of “diversity” have been linked to greater:

Valerie Purdie-Vaughns

Separate studies by Columbia’s Valerie Purdie-Vaughns and Ruth Ditlmann, Claude M. Steele of Stanford, University of British Columbia’s Paul G. Davies and Jennifer Randall Crosby of Williams College confirmed these findings, as did related work by UCLA’s Jaana Juvonen and Sandra Graham with University of California Davis’s Adrienne Nishina

Jaana Juvonen

Diversity is “in the eye of the beholder” because a team may appear more diverse to raters when the group’s composition aligns with the observers’ own characteristics.

-*How do you reduce personal in-group biases based on individual expectations and experiences?

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©Kathryn Welds

Hiring by Cultural Matching: Potential for Bias

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Lauren Rivera

Northwestern’s Lauren Rivera found that job interviewing at elite professional services firms – and perhaps in other industries – is a process of skill sorting as well as cultural matching.

She noted that hiring interviewers who did not employ systematic measures of job-specific requirements tended to use themselves as a benchmark of qualification.
As a result, interviewees rated as “most qualified” tended to resemble their interviewers in educational and geographic backgrounds, self-presentation, hobbies, and more.

Katherine Phillips

This hiring practice leads to cultural homogeneity, which undermines innovation from diversity of thought and experience, demonstrated in research by Katherine Phillips, then of Northwestern, with Katie Liljenquist of Brigham Young University, and Margaret Neale at Stanford University.

Katie Liljenquist

Their laboratory study demonstrated the value of diverse groups in task performance and decision making: Teams with out-group newcomers correctly completed a task more frequently than teams joined by an in-group newcomer.
However members of the heterogenous group expressed lower confidence in their performance.

Margaret Neale

Newcomers can improve group performance by shifting alliances and group interaction, and bringing fresh information to problems.

eHarmony, the online dating service, is developing a job search and candidate matching product intended to reduce the rate of “job-hopping,” according to Grant Langston, VP of customer experience.

Grant Langston

This online offering is expected to match supervisors with potential employees based on 40 dimensions including personalities, work habits, hobbies, in addition to competency metrics, corresponding to Rivera’s observation that elite professional service firms “hired in a manner more closely resembling the choice of friends or romantic partners than how sociologists portraying employers selecting new workers.”

Though eHarmony’s candidate matching product may offer a satisfying match between candidate and supervisor, it may exclude qualified candidates who may bring a fresh perspective to the organization and work group.

-*How do you ensure cultural match and diversity of thought and experience in candidate selection?

“Self-Packaging” as Personal Brand: Implicit Requirements for Personal Appearance?

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Napoleon Hill

Al Ries

During the Depression of the 1930s in the US, motivational writer Napoleon Hill laid the foundation for “personal positioning,” described nearly forty-five years later by marketing executives Al Ries and Jack Trout in Positioning: The Battle for Your Mind.

Jack Trout

Tom Peters

By 1997, business writer Tom Peters introduced “personal branding” as self-packaging that communicates an individual’s accomplishments and characteristics, including appearance, as a “brand promise of value.”
He also enumerated “what branding is not.”

Murray Newlands

Blogger Murray Newlands opines that personal branding refers to all facets of personal presentation.
He notes that “self-packaging is the shell of who you are” and differentiates it from “self-presentation …that essence of what sets you apart from the crowd. “

The goal of personal branding, then, is to communicate the intrinsic, most important, differentiating personal characteristics, exemplified in self-packaging details like attire, business cards, speaking style and more.

Daniel Lair

Communications researchers Daniel Lair, now of University of Michigan at Flint along with University of Utah’s Katie Sullivan and George Cheney, now of Kent State University, cast an academic lens on personal branding in their analysis, Marketization and the Recasting of the Professional Self: The Rhetoric and Ethics of Personal Branding.

George Cheney

They refer to the practice as “…a startlingly overt invitation to self-commodification” worthy of “careful and searching analysis… as (perhaps) an extreme form of a market-appropriate response. “

Lair, Sullivan, and Cheney examine the complex rhetoric tactics used in personal branding, and how these shape power relations by gender, age, race, and class.

Sylvia Ann Hewlett

Sylvia Ann Hewlett and researchers at Center for Talent Innovation echo some of these social concerns with potential biasing effects of personal branding.

Hewlett and team consider the special case of personal appearance as an element of “personal packaging”.
They note the challenges facing women and members of minority groups in meeting unspoken, implicit requirements for executive presence embodied in personal appearance.

-*What elements do you consider in “personal packaging” and the specific case of personal appearance?

-*How do you mitigate possible bias based on expectations for personal appearance?

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Doonesbury Celebrates Women’s Contributions to Work Groups via Thought Diversity and Emotional Intelligence

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Doonesbury Celebrates Women’s Contributions to Work Groups via Thought Diversity and Emotional Intelligence

-* How have you seen women’s Emotional Intelligence applied in the workplace?

Consequences of “Facades of Conformity”

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Patricia Hewlin

Patricia Hewlin proposed that employees, especially those with minority status in the workplace, adopt “Façades of conformity (FOC)” when they “act as if” they embrace an organization’s values to remain employed or to succeed in that organization.

Her article in The Academy of Management Review was followed by Flora Stormer and Kay Devine’s study in The Journal of Management Inquiry, “Acting at Work: Façades of Conformity.”

Earlier research indicates that one negative consequence of Facades of Conformity is that employees develop “rationalizations” that enable them to carry out work assignments, even if these seem distasteful or unethical.

Jerome Kerviel

This paradigm may explain Jerome Kerviel’s experience at Societe General. He was branded as a “rogue trader,” though he was thought not to have benefitted personally from unauthorized trades.

He and others explain his motivation to please his managers and to earn a bonus based on his trades, in the context of his outsider status as someone who had not attended elite universities and was not considered a “star.”

-*In what organizational contexts have you observed “Facades of Conformity” and their consequences?

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