Women Talking to Women. And the Company Takes off
Female directors or female CEOs don't necessarily improve family firms' corporate performance, but when a female CEO can interact with other women in the board of directors, the alchemy leads to a profitability increase up to 18%, Alessandro Minichilli and Mario Daniele Amore (Department of Management and Technology) highlight in Gender Interactions within the Family Firm (with Orsola Garofalo, Universitat Autonoma de Barcelona), forthcoming in Management Science.
When a female CEO is in place, firms with a female dominated board experience a 18% increase over the average firm profitability, while an increase in the presence of female directors from the 25th to the 75th percentile represents a 12% hike in profitability.
Minichilli, Amore and Garofalo advance two possible explanations: "First, the presence of female directors may enhance female CEOs' self-esteem, in an environment such as corporate leadership that is typically considered to be male-oriented. Second, the female-friendly corporate culture stemming from more female directors can encourage cooperation and information exchange at the top thereby improving the quality of board advices".
The effect displays a high heterogeneity and the scholars find it's stronger in small firms, in companies located in areas with progressive views of the role of women in the society, and when the female directors don't come from the controlling family.
In order to test their model, the authors use a database of all the Italian family controlled firms with revenues of over € 50 million, developed by Bocconi's AIdAF-Alberto Falck Chair of Strategic Management in Family Business for the AUB Observatory (AIdAF-Unicredit-Bocconi, together with the Chamber of Commerce of Milan). To their purposes, they identify 2,400 family controlled firms per year in the period 2000-2010 and measure the operating performance in terms of return on assets (ROA).
The scholars perform an impressive range of tests to check the robustness of their findings and notably use a triple difference estimator isolating firms which substituted a CEO in the sample period and comparing how the performance effect of male-female CEO transitions, as opposed to male-male transitions, varies depending on the presence of female directors. The estimates show that male-female transitions have an economically larger and statistically significant effect when the fraction of female directors increases.
The paper highlights the important role played by local culture, showing that gender stereotypes negatively affect the performance of female leaders (the positive effect of female CEO-female directors interactions is stronger in northern regions of Italy and where the results of the World Value Survey show a lack of prejudice).
Furthermore, the effect is stronger in smaller firms, perhaps because in small firms it's easier to leave a personal imprint, and when the female directors don't belong to the controlling family, because in this case it's more likely that the appointment is based on merit.