Females and Precarious Board Positions: Further Evidence of the Glass Cliff

Abstract

The 'glass cliff' posits that when women achieve high profile roles, these are at firms in precarious positions. Previous research analysed appointments (male/female), estimated the precariousness of firms involved and drew inferences about the glass cliff. This study is different as it directly tests the relationship between a precarious situation and changes in board gender diversity. The sample is companies listed on the UK stock exchange reporting an initial loss in the years 2004-2006. A matched control sample is used in a difference-in-differences analysis to avoid inadvertently attributing improvements arising from societal/regulatory changes in gender diversity to the loss event. Findings suggest that when the loss is 'big' there is a difference in the increase in gender diversity versus both the control and the 'small' loss subsamples, i.e. compelling evidence of the glass cliff. In the context of ongoing political and social debates about women on boards our work (i) identifies continuing structural barriers for women ascending to board level in that women are more likely to be over-represented on boards of companies that are more precarious and (ii) sounds a note of caution about celebrating increased gender diversity on boards without considering the precariousness of the company involved.

Why Do Women Still Not Make It to the Top? Dominant Organizational Ideologies and Biases by Promotion Committees Limit Opportunities to Destination Positions

“…First, exploring bias faced by women candidates at the top enables integration and extension of prior research on barriers to advancement (Mulcahy and Linehan 2014;Ragins 2008;Ryan and Haslam 2007;Ryan et al 2010). Second, focusing on the top offers an opportunity for analysis of conditions where power and bias are likely to be most intertwined because the ambiguity of evaluation is the greatest and discrimination is likely to be most pronounced (Auster and Drazin 1988;Gorman 2006;Heilman 2001).…”

“…These might include differential access to education or the lack of job opportunities that are available to candidates that help groom them for promotion. For women, Bglass cliffs^(i.e., being put into leadership positions during periods of organizational crisis, which often leads to being blamed for an organization's failure), Boff ramps^(i.e., leaving Bcareer highways^to achieve better work life balance under the assumption that there will be Bon-ramps^to resume one's career trajectory at a later time), and the Bmommy track syndrome^(i.e., an unwillingness to take posts that are demanding of travel or long hours) are justifications for why certain women are unable to reach destination positions within their respective organizations (England and Li 2006;Hewlett and Luce 2005;Mulcahy and Linehan 2014;Ryan and Haslam 2009). …”

Corporate governance, stickiness and losses

“…Two studies that specifically examine changes in corporate governance in response to a shock event are Farber (2005) and Mulcahy and Linehan (2014). Farber examines whether an investigation by the SEC precipitates a change in a range of governance metrics and documents whether any of these changes provide economic benefits.…”

“…The few research studies that have investigated corporate governance changes at firm level pertain mainly to responses in firms' governance to negative shocks including accounting misstatements, the discovery of fraud, the reporting of extreme losses or the revelation of an internal control material weakness (ICMW). For example, Farber (2005) points out that firms identified by the Securities and Exchange Commission (SEC) of fraudulently manipulating their financial statements take steps to improve their governance; Mulcahy and Linehan (2014) find that extreme losses precipitate improvements in gender diversity at board level in their study of the glass cliff; ICMWs are often associated with underperformance or the reporting of a loss (Johnstone et al, 2011). In this paper, we argue that the incurrence of a loss because of its very nature and its potential associations as discussed above will provoke changes in corporate governance at the firm level.…”

“…If losses are allowed to perpetuate, the shareholders of the company will exercise their put option to liquidate the firm (Hayn, 1995). Incurring a loss is not as extreme an event as the discovery of fraud studied by Farber (2005) and Perry and de Fontnouvelle (2005), but it is indicative of a situation that requires remedial action and potentially may evolve to become a crisis (Mulcahy and Linehan, 2014). Even if losses are not expected to perpetuate, they are indicative of a rate of return that is clearly below that required by investors.…”