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July 31, 2017

Gender diversity in teams

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Team composition is a rising theme in the economics literature. One branch looks at the impact of expanding women’s participation on corporate boards, political commissions, and other teams. Women’s presence can both alter group preferences and influence group dynamics. As some committees are responsible for high-level decision-making, greater participation by women could reduce the achievement gap currently found between men and women in positions of authority. 

Gender diversity is relevant from a policy perspective. Laws requiring organizations to have more female representation would help women reach top positions. Whilst the gender gap in educational attainment and achievement has been closing, women with the same education and experience as men are still underrepresented in senior positions. In the US, for example, women receive more than 30% of MBAs and 50% of PhDs, and they make up half of law school graduates. However, they are less visible in high-ranking roles. In 2011, women accounted for only 16% of directors on corporate boards in the US and 12% in Europe. It is, in fact, rare for firms to have more than one female director, which suggests tokenism. 

What do we know about the implications of gender composition and gender diversity in teams? What impacts of gender diversity on performance and group decision-making have actually been observed? 

Understanding whether an organization’s performance is influenced by its gender diversity is central to the debate about gender parity on boards and committees. One study explored the influence of team gender composition on economic performance using a large online business game. In the game, played by groups of three, teams took on the role of general manager of a beauty industry company competing in a market composed of four other simulated companies. All-women teams significantly outperformed mixed and all-male teams. 

Another study looked at the relationship between company performance and the gender composition of corporate boards following the passage of a law in Norway requiring that women make up at least 40% of the corporate board members of Norwegian firms. It found that an increase in the number of women on boards led to a large negative impact on firm value. A 10% increase in female representation led to a 12.4% decline in value after the quota was imposed. 

Understanding the sources of 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. 

The study of the gender composition of teams in the business game setting investigated which decisions drive gender differences in performance. It found 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. 

What about the negative effects of gender quotas on firm value? The study of the effects of the Norwegian gender quota on corporate decision-making found that the quota changed the style of corporate leadership, especially with respect to firms’ employment policies. In particular, firms affected by the quota laid off fewer employees, resulting in higher relative labor costs. 

The evidence is growing that the presence of women affects a team’s preferences, decision-making, and outcomes. This implies that policies affecting the gender composition of decision-making teams are likely to have implications beyond simply providing more opportunities for women to participate in committees. Devising such policies remains challenging, because the evidence of their effects and the precise channels through which they may operate are still limited. 

There is some evidence that imposing quotas on political committees and corporate boards can negatively influence short-term business performance. This cost has to be weighed against the social welfare benefits, such as providing additional opportunities to women, expanding the set of preferences represented, and potentially narrowing the gender gap in high-skilled positions, although there is still no empirical evidence on long-term effects. In the long term, the adoption of quotas may narrow this gap and gradually counteract the detrimental effects. 

Determining whether policies to boost gender parity are successful depends largely on the outcomes being measured and the time frame. The evidence so far comes mostly from corporate boards, but that is a very particular setting. Moreover, the speed at which a policy is introduced and implemented also matters. Slower implementation might help change social norms and encourage women to get the appropriate education and training needed to contribute to a team’s success. Greater representation of women in lower-level decision-making can also increase the pool of experienced women at different levels of responsibility.

Related articles:
Gender diversity in teams, by Ghazala Azmat

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We recognize that IZA World of Labor articles may prompt discussion and possibly controversy. Opinion pieces, such as the one above, capture ideas and debates concisely, and anchor them with real-world examples. Opinions stated here do not necessarily reflect those of the IZA.