I was recently interviewed by a talented writer for an article on women and risk management. I believe there are a lot of misconceptions around the prevalent thinking that women are less risk averse than men. Our research shows two main trends as to why women are perceived as a good choice for these roles:
- First, a number of studies have been conducted over last decade or so that “assert” that women are more risk averse than men. However, the results are not that simple and should not be broadly stated. I’ll talk more about that in a moment.
- Second, there have also been studies showing that companies with a higher proportion of women on their boards have better overall results and are more risk averse. For example, a Credit Suisse Research Institute study titled Gender Diversity and Corporate Performance found that companies with women on boards are outperforming those with all-male boards by 26 percent over a six-year period. Net income for companies with women board members is about 14 percent over the same time frame. The figure is 10 percent for companies with only men in boardrooms. It’s said that in addition to being less risk averse, diverse boards, tend to do better with managing debt, and are better at auditing when heightened scrutiny is warranted.
Let’s look closer at each of these trends.
Studies asserting women are less risk averse
While it’s true that some studies have concluded that women are more risk adverse than men, this is an oversimplification of a more complex situation. For this to be true, every single woman would have to be more risk averse than every single man. It’s like saying, “Women are shorter than men.” So much more goes into this equation than gender. One study found that the age of men and women was a factor in how risk averse they are. Tufts University researcher, Julie A. Nelson, has done a lot of research in Feminist Economics. She cites a flawed statement in one article that concluded, due to women’s greater risk aversion, “female fund managers may be better suited to female customers who share their pattern in behavior than do men” (Beckmann and Menkhoff 2008, 381). However, if we assume that female clients have the same distribution of (presumed) risk preferences as female fund managers, based on statistics, the chance of a randomly selected female client being matched on risk aversion with a randomly selected female manager is only 37.5%.
Companies do better when more women are part of overall leadership
Our research at The Kinlin Company tells us that companies tend to perform better when there is a better balance of men and women at the table. This may have something to do with offsetting certain group dynamics where there are only all or mostly men and few or no women present. But our research informs us that parity in and of itself plays more of a role. The evidence for this is so compelling that Eve Ellis, a wealth advisor at Morgan Stanley, set up a portfolio called Parity. Parity only invests in companies that meet Morgan Stanley’s financial requirements and have at least three women on their boards. Their decision was based on research conducted by McKinsey, Catalyst, and Credit Suisse, and universities like Pepperdine, Columbia, North Eastern, and Harvard University that support the advantages of higher ratios of female leadership. So while landing a risk management job may be a good thing for those women who have that expertise, the perception that a person can do a job better based on gender could have seriously negative implications – in any career.