Firms led by female CEOs face significantly fewer labor lawsuits

6 minutes ago

Having a woman at the top of the org chart helps keep companies out of court. (AP Photo/Pat Sullivan)

Companies led by female chief executives encounter fewer serious allegations of coercive labor practices and face fewer labor lawsuits than firms led by men, according to a new study that is among the first to look at the relationship between female gender diversity in corporate leadership and day-to-day employee welfare.

The study, published April 1 in the Journal of Banking & Finance, also found that a greater variety of employee-friendly initiatives are adopted when firms have female CEOs. Chelsea Liu, an associate professor at the University of Adelaide, used a sample of 11,970 labor lawsuits filed against S&P 1500 firms between the years 2001 and 2014 to conduct her research.

The sample firms experienced an average of 0.791 labor lawsuits a year, with an average of one lawsuit alleging coercive labor practices every four years. A coercive labor practice is defined as a particularly egregious allegation of labor violations, such as threats or intimidation. Firms led by women, however, experienced an average of 0.291 fewer labor lawsuits per year compared with firms led by men, representing a decrease of more than one-third in overall labor-lawsuit frequency. 

Companies led by female CEOs also experience 65% fewer coercion lawsuits per year than the .25 per year experienced by all firms. These are a subset of more serious lawsuits alleging coercive labor practices, such as threats of violence or retaliation. Liu said this finding wasn't particularly surprising to her, given what's already understood about female management styles. 

"Based on prior theories and evidence on managerial styles and on the role of gender diversity in corporate leadership, this is what we expected to find," she said.

Approximately 3.1% of the firms in Liu's sample size were led by women, which is similar to the percentages observed in prior literature, according to Liu. Of the top 3,000 companies in the United States, just 167 were led by women as of February 2020, despite research showing that female directors and executives are value-adds to companies.

Because the research relies on historical data about these companies, Liu also used statistical analyses to strengthen her findings. For example, she matched firms with similar backgrounds in order to get a more accurate comparison and isolate the role of female-led companies. She said her research builds on prior studies that use labor disputes and lawsuits as a measurement tool.  

"Both employee welfare and corporate gender diversity are very important areas and really important issues," she said. "What this paper hopes to achieve is to provide a small piece of the puzzle that adds to the large body of growing evidence on both issues."

Regardless of who leads a firm, employee satisfaction remains an important indication of the success of that company, according to the paper. Past research finds that employee welfare is linked to higher firm valuation and increased innovation, greater financial returns, and reduced cost of capital, and Liu wrote that female perspectives in upper management could play a big role in employee satisfaction. 

This isn't to say that employees at women-led companies don't have concerns or complaints about their workplace, Liu added, but her research found through a separate examination of the corporate social-responsibility scores developed by Kinder Lydenberg Domini that the presence of a female CEO is positively associated with companies implementing greater employee-friendly initiatives, such as profit-sharing, performance incentives, and training and development. These initiatives are then already in place if an employee conflict arises. Kinder Lydenberg Domini scores measure the number of strengths and concerns relating to employee issues and are commonly used in related studies. 

While her paper examines the problems that can come from a lack of gender diversity in corporate leadership, Liu said solutions will have to go a step further to include corporate policy changes.

"When it comes to increasing the proportion of female CEOs, the question here is the policy debate. It's a lot more nuanced and a lot more complicated than just having a quota," she said. "So the article is basically raising a question rather than providing a solution to it."

Another question, Liu said, is whether females CEOs themselves are effecting change or whether the firms that hire female executives are self-selecting.

"We know that female firms led by female CEOs experienced fewer labor lawsuits," Liu said. "But then the question is, is it the female CEOs making the difference themselves, or is it because companies which already are keen to improve their labor relations are deliberately choosing female CEOs, knowing that they would be helpful in this respect?"

The study "CEO gender and employee relations: Evidence from labor lawsuits," published April 1 in Journal of Banking & Finance, was authored by Chelsea Liu, University of Adelaide.

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