Gender diversity in teams Updated

Expected benefits and potential shortcomings

A common motive for promoting gender diversity in teams is that it can advance equal opportunities for women and make up for past inequities. The gender gap in educational attainment is closing—for example, college enrolment of women rose dramatically in the US in the 1930s, and today more women than men graduate from college. Still, gaps in labor market outcomes persist. Policies promoting diversity are intended to make society fairer, faster. While such policies are often controversial—and there is concern about a mismatch between the roles these policies expect women to fill and women's preparation—greater female representation might, however, become a model for future generations of women.

In addition to equal opportunity, another motive is the expectation that a greater female presence on teams will broaden teams’ preferences so that they are more representative of society as a whole. Women in positions of power might adopt policies that better match women's preferences or help women. For example, women might choose more flexible work hours or promote public expenditures that benefit women more and that can increase female leadership, reducing gender discrimination in the long term.

Another reason for decision-makers to care about gender diversity is that more diversity could enhance a team's effectiveness. Women and men bring different preferences and viewpoints to the table, which could alter the dynamics of the group.

At the individual level, economics research points to gender differences in a number of dimensions, such as attitude toward risk, preferences for competition, and social values [2], and the psychology literature notes differences in performance when men and women work together or compete. The presence of women changes the group dynamics. Groups are known to have idiosyncrasies. For example, group polarization is a widely documented phenomenon: groups make decisions that are more extreme than the average of the individual views in the group [3].

Gender diversity and performance

Understanding whether an organization's performance is influenced by its gender diversity is central to the debate about gender parity on boards and committees. Economic theory has focused on team diversity with respect to ability but not gender. The impact of imposed gender diversity on team performance would depend on why gender diversity did not arise spontaneously.

For example, if firms and those voting to appoint board members were already optimizing board composition before the change, then profits would be expected to decrease. Because groups typically form endogenously, an empirical understanding of the link between diversity and performance is more difficult to establish. If more-diverse teams perform better, it is tempting to conclude that more diversity is rewarding.

This might be because groups that are more diverse are more entrepreneurial and perform well because of their diversity. However, the reverse could also be the case. Teams that were already performing well might be at greater liberty to behave in ways that are not necessarily profit-maximizing, such as by implementing gender diversity policies. Establishing the causal link between diversity and group performance is thus problematic.

Team formation is a function of many parameters. The ideal setting for studying the causal relationship between team diversity and performance is one that captures the complexity of endogenous team formation, while observing external (exogenous) influences on team composition (such as policy mandates to include women). Some studies have used instrumental variables techniques—tools to estimate causal relationships—to assess the effect of exogenous changes in the gender composition on team performance in different settings [4], [5].

One study explores the influence of team gender composition on economic performance using a large online business game [4], [6]. In the game, played by groups of three, teams take on the role of general manager of a beauty industry company competing in a market composed of four other simulated companies. Two identical competitions occur in parallel, one involving undergraduate students and the other MBA students.

Although the setting is not natural, certain features lend themselves to the study of gender diversity in teams. First, reverse causality is not a concern. Teams are formed endogenously, without any performance history, and, more important, remain fixed for the entire game. Second, the game simulates the real-world business environment as closely as possible. MBA students are also relevant, as they are likely to play a key role in real-world business management.

The sample is large and broadly representative: three editions of the game, 2007 to 2009, yielding a total of 37,914 participants, organized into more than 16,000 teams from 1,500 universities in 90 countries. Teams formed by three women are significantly outperformed by any other gender combination, in both the undergraduate and the MBA competitions. Performance, as measured by the stock price index, is lowest in these teams by a large margin: about 0.17 standard deviations of the mean in both competitions.

Two hypotheses were examined to explain the performance difference. The “sorting-by-ability” hypothesis posits that the distribution of ability at the individual level is identical in men and women but that less competent women are more likely to sort into three-women teams than less competent men are to sort into all-men teams.

The other hypothesis posits that men and women do not differ in ability or sorting patterns but that teams have different work dynamics, depending on their gender composition. Teams would be comparable in ability, but their economic performance might still differ because of differences in team dynamics.

A study using an instrumental variable approach finds that the performance effects are driven by work dynamics and not by sorting [4]. These results can be interpreted as the marginal effects of small interventions on endogenously formed teams. In this sense, the results are particularly informative for guiding public policies such as the imposition of quotas on existing teams.

Another study looks at the effect of gender composition on teams that are randomly formed using a business game with Dutch university students [7]. Teams with an equal gender mix perform best.

A recent study investigates the relationship between performance and the gender composition of endogenously formed corporate boards following the passage of a law in Norway requiring that women make up at least 40% of the members on corporate boards of Norwegian firms [5]. Achieving compliance required an average turnover of 30% of board members in the 248-firm sample over 2001–2009, although initial female representation varied widely across firms. The setting offers a natural experiment for studying the effects of gender diversity on corporate performance because it overcomes the endogeneity problems that make it hard to distinguish which characteristics of boards and board members affect firm value.

The study finds that an increase in the number of women on boards leads to a large negative impact on firm value. It also finds that at around the time the law was announced, the average industry-adjusted stock returns for firms with no female directors was –3.54%, compared with –0.02% for firms with at least one female director, suggesting that boards were chosen to maximize shareholder value and that imposing a constraint on the choice of directors led to economically large (and statistically significant) declines in value. A 10% increase in female representation led to a 12.4% decline in value after the quota was imposed. Value is measured with Tobin's Q (the ratio between the market value and replacement value of a physical asset).

The change in board membership happened rapidly, and the new female directors had much less corporate executive experience and were younger than the male directors. These two characteristics largely accounted for the fall in firm value. This suggests that these patterns will disappear in the long term.

Recent studies challenge the finding that an increase in the number of female board members has a negative impact on firm value, finding instead that there is no effect, or even a positive effect, on firm value. For instance, one study, which uses information on SP SmallCap 600 boards of directors between 2011 and 2013, shows that women who are appointed as corporate directors diversify the set of board expertise more than their male counterparts do [8]. The authors subsequently show that this increase in skills heterogeneity leads to an increase in firm value.

Gender diversity and decision-making

Really understanding the effect of gender diversity on performance requires digging deeper into how and why gender diversity matters in a group setting, specifically how gender diversity interacts with team decision-making, which is what ultimately shapes group performance.

Gender differences in outcomes at the individual level have often been attributed to discrimination, occupational segregation, or differences in the education and training of women [9]. However, many experimental studies have looked beyond these explanations to see whether psychological attributes and preferences also play a role. Those studies suggest that women are generally more risk-averse than men and less drawn to competition. Most of these studies are done at the individual level, and because groups have their own idiosyncrasies, it may not be valid to extrapolate these findings to the group level.

One experimental study has, however, examined the interaction between gender and group choices, looking at whether the presence of women, or the balance between women and men, matters for group decision-making in a dictator game [10]. The game has two types of players: proposers and responders. The proposers determine the allocation of some endowment, such as a cash prize. The responders simply receive the remainder of the endowment left by the proposer. The game is designed to measure behavioral traits such as fairness and altruism. In the study, groups of three people divide a sum of money among themselves and a fourth person. The gender composition differs across groups. The study finds that groups with a majority of women leave more for the responder and also choose the egalitarian division more often than groups with a majority of men. The most generous groups consist of two men and one woman, suggesting that having a man in the group enhances the generosity of women in the group.

A study of the gender composition of teams in a business game setting investigates which decisions drive differences in performance [6]. The study finds differences in investments in research and development (R&D), in pricing strategy, and in corporate responsibility. All of these contribute to differences in profits and point to differences in preferences depending on group gender composition. For example, in the study, majority-women teams invested less in R&D, possibly because these teams were more conservative in their management vision. All-women teams tended to price their products higher than any other gender combination did. This pricing strategy resulted in significantly lower revenues (and profits) and much higher inventory costs. The pricing strategy is interpreted as being less aggressive than that of other teams and suggests that all-women teams are not as competitive as other teams.

The personal values of directors play an important part in executives’ decisions. A study of differences in decisions related to corporate responsibility finds that three-woman teams invest significantly more in social and environmental initiatives beyond what would be optimal for profit-maximization. The decisions on social spending are in line with evidence for US companies that more female representation on boards leads to more spending on environmental and corporate social responsibility concerns.

What about the negative effects of gender quotas on firm value? A study of the effects of the Norwegian gender quota on corporate decision-making finds that the quota changed the style of corporate leadership [11]. The study compares publicly listed firms in Norway with a matched sample of unlisted firms in Norway and other Nordic countries.

Most corporate decisions were unaffected after women's board representation increased, but there were large differences in firms’ employment policies. In particular, firms affected by the quota laid off fewer employees, resulting in higher relative labor costs. Female board members might consider labor hoarding to be a more profitable long-term strategy, or they might have a greater concern for workers’ vulnerability to unemployment risk.

In more recent work, one study shows that gender spillovers in career advancement also exist [12]. Using employer–employee matched data on white-collar workers in Norway, the authors consider the entire organizational hierarchy of workers and changes in the female share of co-workers. They find that women experience a significantly lower annual likelihood of advancing a rank than their male counterparts. The gap is reduced when there are more female bosses in the next highest rank, but increased when there are more female peers at the same rank, suggesting a positive spillover across ranks but a negative spillover within ranks.

The effect of gender on team decision-making is likely to have several other consequences. One argument for affirmative-action policies or better enforcement of equal opportunity policies is their long-term effect on gender discrimination. Women in top positions, whether because of gender quotas or increased education and training, might influence decisions to hire or promote more women. This might lower or eliminate statistical discrimination—gender inequality stemming from stereotypes or other forms of discrimination—and in the long term enable labor markets to operate without these distortions.

A number of recent studies have looked at how the gender composition of committees affects hiring decisions. One study for the Spanish judiciary over 1987–2007 uses random assignment of candidates to evaluation committees for public examinations [13]. (Candidates are allocated to committees through a lottery that allows for variation in gender composition.) The study finds that a female candidate was significantly less likely to be hired when she was randomly assigned to a committee with an already relatively high share of female evaluators. Each additional female committee member was associated with a 2.8% decreased likelihood of hiring a female candidate and a 3.9% increased likelihood of hiring a male candidate. Similarly, a recent study using information on 100,000 applications to associate and full professorships assessed by 8,000 randomly selected evaluators in Italy and Spain shows that a larger number of women on evaluation committees does not increase the number of women promoted or the quality of female candidates who qualify [14]. The results suggest that a generalized introduction of gender quotas might not be a good idea.

The underrepresentation of women on boards and committees is often attributed to a lack of female role models and, sometimes, to discrimination in the selection process because of male dominance. The underlying argument for legislative mandates for gender parity on boards and committees is that these problems will disappear over time and the quotas can be lifted. However, in the long term, such legislative mandates might be both ineffective and counterproductive if committees with a higher share of women are less likely to select female candidates [13].

Why women seem to favor men is unclear. One hypothesis concerns taste-based discrimination: female evaluators may be more sympathetic toward candidates of the opposite sex. Or female evaluators might overestimate male candidates’ competence (statistical discrimination), or might not share the positive discrimination tendency of male evaluators.