Are women CEOs really more-risk averse than men?

It has been the widely accepted view, supported by research, that women are more risk-averse than men when it comes to decision making. But a new study from the University of Alberta suggests that might not be the case.

Instead, the research indicates that decision-making differences between genders has more to do with environmental context and the level of scrutiny a CEO endures.

“This general assumption of female CEOs being more conservative than male CEOs is probably too simplistic,” said lead author Daniel Gamache, associate professor of management at the Terry College of Business at the University of Georgia.

The study is at the forefront of what will be more research into women CEOs, he said.

“When we're looking at CEO research, part of what's been limiting before is just there's been very, very few female CEOs, and that makes it hard to find trends or notice the differences,” said Gamache.

“Although we're still nowhere near where we want to be as far as gender representation in the upper echelons, we are making progress, and because of that we can now test and explore more things from an empirical standpoint.”

Context matters with gender differences

The paper, co-authored by Timothy Hannigan, associate professor of strategy, entrepreneurship and management at the Alberta School of Business, used amount of CEO acquisitions and environmental factors to determine more contextual influences on decision making.

And they found the gender differences in strategic decision making by CEOs depend on their particular work environment — and that the level of scrutiny plays a big role.

“We need to think about context, that it would be important for HR managers to understand the nature of pressures that both men and women are facing, and understand how factors like scrutiny could be shaping that,” said Gamache.

Women CEOs more attuned to scrutiny

The paper found that in high-scrutiny environments, the decision-making differences in women and men CEOs become less pronounced, meaning they engage in acquisitions at more comparable levels.

This scrutiny can be at the organizational level, Gamache explained, or it can be in the form of outside factors such as media or shareholder scrutiny, but women CEOs are more likely to not only experience higher levels of scrutiny, but also perceive it more than their male colleagues because of being more exposed to scrutiny on their way to the executive level.

“Female leaders may be more attuned to scrutiny than male leaders, simply because of what they've had to overcome to get into leadership roles,” he said.

“So it's going to be interesting to see, down the road hopefully, that these biases will diminish as over time there'll be more equality in leadership. And if that happens, it'll be interesting to see whether some of these changes that we're finding with regards to scrutiny may go away.”

Comprehensive decision making in women CEOs lost under scrutiny

The study also demonstrated that in addition to responding to scrutiny differently, women and men make decisions differently. For example, a 2016 neuro-analysis of fMRI imaging showed that women exhibit more brain activity while making decisions than men, indicating more comprehensive processing of data.

“Women engage in detailed, elaborate, and effortful analysis of available information, whereas men rely more on single cues that are readily available during information processing … women consider the interrelationships between different and less accessible cues, whereas men tend to focus on singular and highly salient, self-relevant cues,” the paper states.

For this reason, when women are in highly pressurized environments with high levels of scrutiny, they lose the ability to engage in this processing, said Gamache.

This has a negative effect on organizations, he said, because the value of that comprehensive decision-making is lost.

“There's a lot of research that suggests that more demanding jobs reduce the ability to process information. And if information processing is an advantage that women have, then more demanding jobs might be taking away that advantage,” said Gamache.

“In the CEO realm, I would think that our research may indicate that boards of directors should look at how the context of the situation may be shaping the decision making, and may be taking away from some of the benefits of diversity that they have within the upper echelons, within top leadership, CEOs and those around the CEO. The context might be changing the way they would normally be thinking, and maybe there's diversity benefits you're losing out on if the context is creating too much scrutiny and pressure.”

HR should take wider view of women managers

This research suggests that managers should consider the impact of environmental context—especially the role of scrutiny—when considering the risk propensity of female leaders.

 “To say that women are conservative, and that’s just how they were born, is not very helpful. The fact that their behaviour shifts depending on conditions speaks to the dynamism of female CEOs and how they act,” Flannigan said in a U of A blog post.

Gamache added that although the research focused on CEOs and acquisitions, there are obvious implications for women leaders at all levels, especially considering decision-making differences can be shown in fMRI imaging.

“The research we're drawing on would certainly suggest that women make more deliberate, careful decisions than men on average – of course, there's obviously differences across people,” he said. “As a result, maybe you don't want to place confines that rush those decisions, and maybe don't want to assume that a slower decision is necessarily a poor one.”