Women, Risk, and Wall Street
When Michael Lewis, author of The Big Short, a bestseller detailing the 2008 Financial Crisis, was asked to share the one thing he’d do in order to avoid a future market meltdown, he said, “I would take steps to have 50% of women in risk positions in banks.”
Christine Lagarde, France’s former finance minister and current head of the IMF, once quipped that, “If Lehman Brothers had been ‘Lehman Sisters,’ today’s economic crisis clearly would look quite different.” Lagarde concluded, “The current economic crisis affords [women] an opportunity to impose more responsible, moderate and equitable approaches to finance.”
Boys Will Be Boys
Underlying both Lewis’ and Lagarde’s call for more women leaders in Financial Services, is the idea that men take greater risks than women when it comes to money.
Finance professors Brad Barber and Terrance Odean, in a paper entitled “Boys will be Boys: Gender, Overconfidence, and Common Stock Investment” conclude that, in areas such as finance, men have a higher susceptibility to overconfidence, risky trades, and tend to have lower rates of return than their female colleagues, who are more risk-averse.
So, if a large factor in the recent global economic crisis was the greed and poor judgment exhibited by the testosterone-fueled Masters of the Universe, then, logic follows, an industry with more women leaders would be a more stable, risk-averse place. As Christopher Caldwell wrote in Time Magazine, “There weren’t any women among the high-profile malefactors in [the] financial meltdown. Maleness has become a synonym for insufficient attentiveness to risk.”
But, it is more complicated than that.
The Dangers of Groupthink
A diversity of viewpoints amongst senior leaderships goes a long way to ensure well-reasoned decision-making in financial institutions. Professor Anne Sibert, Head of the School of Economics, Mathematics and Statistics at Birkbeck College in London, writes:
If – as the research may suggest – men are less risk averse than women, then a work group composed primarily of men (or primarily of women) may be a particularly bad idea. A vast psychology literature documents the phenomenon that group deliberation tends to result in an average opinion that is more extreme than the average original position of group members. If a group is composed of overly cautious individuals, it will be even more cautious than its average member; if it is composed of individuals who are overly tolerant of risk, it will be even less risk averse than its average member.”
In March of this year, Deutsche Bundesbank economists conducted an extensive study of German finance houses and concluded that ‘a higher proportion of female executives leads to a more risky conduct of business.’
The paper goes on to state:
“If group members come from heterogeneous backgrounds in terms of experience and values, this might increase the potential for conflict inside the group and hinder decision-making.”
Though the controversial Deutsche Bundesbank paper was largely dismissed as misguided, it does bring to the fore the problematic way that gender is discussed in the Financial Services industry.
Yes, men and women can handle risk differently. But, above all, what matters is the competency of the individuals sitting around the table, the dynamic of the group, if dissenting opinions are encouraged, and if multiple perspectives are heard.
After all, no woman wants to be sitting on a board or in a C-Suite just because she is there to keep the boys in line.