Do female execs produce better stock returns?

Newly public companies that have women in senior management enjoy higher earnings than companies that have all-male management teams, according to a study.

4 min read
Wall Street loves its women--as long as they're in the senior executive suite.

Newly public companies that have women in senior management enjoy higher initial public offering prices and higher earnings per share than companies that have all-male management teams, according to a study by university of Michigan Business School professor Theresa Welbourne.

Welbourne and her researchers have been tracking the data since 1988, when they found no women in the top management teams of 134 companies that went public. By contrast, 41 percent of the 895 companies that went public in 1996 had female senior executives.

Welbourne's statistics, crunched from Securities & Exchange Commission documents and stock performance charts, did not attempt to answer the question of why or how women executives boosted the stock price or earnings per share. But Welbourne, who is also chief executive officer of Ann Arbor, Mich.-based research company eePulse, speculated that the conclusion correlates with another trend: the growing number of women who defect from large corporations to work at start-ups or create their own businesses.

"One of the more striking suggestions that this research makes is that talented women may be leaving larger companies where ingrained corporate culture may have created a glass ceiling for women executives, and they are moving to smaller companies where they can have an effect on the direction of the company," Welbourne said. "Talented female executives may well be making the difference for these smaller companies in the post-IPO period."

Welbourne has never compiled similar statistics for more established companies, and the research is limited to businesses that have been public for no more than three years. But she said executives throughout corporate America may learn significant lessons from the relatively young companies she studies.

"IPOs either sail off and do well, or they tank very quickly," Welbourne said. "They are the fruit flies of management because of their short life spans. Everyone can learn from them."

Skeptics might counter that Welbourne's conclusions, though statistically valid, are not necessarily sound: The relatively solid financial performance of many newly public companies may not be due to a woman's presence in the executive suite but rather the unprecedented stock market bull run of the late '90s. The rally lifted the fortunes of many U.S. companies, particularly small technology ventures with Internet orientations--the kind of anti-establishment, anti-hierarchic businesses that lured many women from traditional jobs.

As the stock market continues to wither, technology start-ups postpone IPOs, and the United States braces for a possible severe economic cooling in 2001, will Welbourne's research turn to bunk?

"I don't think so," Welbourne retorted. She admits that the many technology companies in the early days of her research recruited women with healthy stock option packages, flexible hours and telecommuting privileges. But she thinks her research applies equally at a Detroit-based automobile manufacturer in 2000 or at a San Francisco-based e-commerce outfit in 2003.

"We've looked at data from 1993, 1996 and 1999, and we're seeing the exact same pattern," she said. "In 1993, there were no dot-coms, and there wasn't the technology bull market. We were studying the impact of women executives of companies that went public at the time--steel companies and manufacturing companies--not in the technology industry."

Welbourne's research is also backed up by independent studies from a slew of other academics and industrial psychologists in the past year.

Adding up the numbers
Hagberg Consulting Group in Foster City, Calif., recently conducted an in-depth performance evaluation of senior managers in technology, health care, financial-services and consumer-goods industries. Roughly 25 behavioral and performance experts judged 425 high-level executives in 52 categories. Although men earned slightly higher marks in critical areas including strategic ability and technical analysis, women won higher ratings on 42 of the 52 skills measured.

Likewise, Minneapolis-based consulting firm Personnel Decisions International examined 58,000 managers and found that women outranked men in 20 of 23 areas. Michigan management consultant Larry Pfaff judged evaluations from 2,482 executives in numerous job sectors and industries and concluded that women outperformed men on 17 of 20 measures.

Welbourne will present her study on Thursday night at a University of Michigan West Coast Forum in Redwood City, Calif. The presentation will include a panel discussion with women executives from technology companies in the Silicon Valley.

It will be one of few times that the study has been presented to executives and the general public. The research is widely known in academic circles but relatively unknown in Corporate America, but Welbourne said managers are reviewing the study with enthusiasm. Many human resource managers and recruiters are desperate to fill openings as the unemployment level hovers at historic lows.

"The academics in gender research are excited as can be about this because they never really tied women's management style to the firm's financial performance, and women MBA students love it," Welbourne said. "The men are excited too. If it concerns stock price, they're interested. Who wouldn't be interested?"

Ironically, Welbourne didn't start the study in order to prove that women helped boost corporate performance. While working on her doctoral degree and while teaching at Cornell University in the early '90s, she stumbled on the findings when they were compiling variables on hundreds of companies and analyzing the data. The dearth of women in senior positions made the financial performance of the companies they worked for stick out like a sore thumb.

Although Labor Department statistics indicate that 45 percent of all managerial posts are held by females, only two of the nation's 500 biggest companies have female CEOs: Hewlett-Packard's Carly Fiorina and Avon Products' Andrea Jung. Of the 1,000 largest companies, six are run by women.

"I thought I noticed a correlation" between the presence of women on the management team and the company's performance," Welbourne said. "But the data was shocking. It showed statistically, with all the right controls, that this touchy-feely human resources stuff really makes a difference."