Welcome to the Glass Cliff

An early look at a Pacific Standard story that's currently only available to subscribers.
By Pacific Standard Staff,
The corner of Wall Street and Broad Street across from the New York Stock Exchange. (Photo: Timothy A. Clark/AFP/Getty Images)

Inherent market bias is one of the factors keeping women off corporate boards—until someone has to take the fall. Welcome to the Glass Cliff. Katie Gilbert explores evidence indicating investors punish companies by selling stock when women are brought on board.

Gilbert's Pacific Standard essay is currently available to subscribers and will be posted online on Monday, January 25. Until then, an excerpt:

In a 2011 paper published in the North Carolina Law Review, Harvard sociologist Frank Dobbin and then-Harvard Ph.D. candidate Ji Wook Jung showed that, between 1997 and 2006, institutional investors like banks and investment firms tended to sell shares in the 400 U.S. firms the researchers tracked after women were appointed to their boards. The researchers found no link between female director appointments and actual company profitability, and concluded that unconscious bias was to blame. Similarly, a group of psychologists from the University of Exeter in the United Kingdom published a study in 2010 revealing that, among the 100 companies with the highest market capitalization on the London Stock Exchange between 2001 and 2005, companies with all-male boards enjoyed a 37 percent boost in stock valuations relative to peer companies where there was at least one woman director. Again, the researchers found no objective performance gaps between these groups of companies, and blamed the behavior on widely held prejudice.

A 2012 study from business and finance professors at Exeter and the University of Bath analyzed the market’s reaction to news that U.K. company directors planned to trade their own shares—typically important news for investors—and found a muted reaction when the seller or buyer of the stock was a woman. (This despite the researchers’ finding that female directors’ trades ultimately offered the better stock tips.)

Investors seem to assume that board directors come in one default setting—male—and any deviation from that norm feeds a perception in the market that something’s wrong at a company, explains Alex Haslam, one of the psychologists from the University of Exeter who published the 2010 study. (Haslam is now a professor of social and organizational psychology at the University of Queensland.) Tangled up in that bias may be a warped bit of truth: Haslam and his co-author Michelle Ryan have shown in various studies that women are more likely to be appointed to leadership positions that carry an increased risk of failure. In their research, the only time study subjects were more likely to favor a woman’s résumé over a man’s was when the hypothetical position involved heightened levels of crisis. For real-life examples of what they’ve termed the “glass cliff” in action, Haslam points to the tenures of Carly Fiorina at Hewlett-Packard, Mary Barra at General Motors, and Jill Abramson at the New York Times. For a 2015 example, see Ellen Pao’s resignation at Reddit.

It’s possible some investors recognize that a woman’s appointment to a leadership position may hint at pre-existing trouble within a company. But even a hyper-perceptive market understanding of the sexist dynamics within companies wouldn’t explain the degree of bias that researchers have uncovered.

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