Lehman Sisters Hypothesis: Scientist kills myth that women take fewer money risks

There’s a lot of anecdotal evidence to suggest women are more cautious when it comes to taking risks with money. Scientists have looked at portfolios of stocks to assess whether gender makes a difference to investment performance and have undertaken other studies in order to better understand the female economy. A new study shows that women aren’t different from men when it comes to risk management, effectively debunking the Lehman Sisters Hypothesis. This research, by Macquarie University expert Elizabeth Sheedy, resonates with me. She notes that women themselves are a diverse bunch. Yet, dissecting the world on the grounds of gender is a common strategy in business. Take the media industry, which sells female eyeballs through women’s magazines or rich men’s eyeballs through websites carrying sophisticated financial information. The reality is that women aren’t only interested in traditional women’s topics and many women are interested in the details contained in the graphs and spreadsheets attached to investment analysis. This, meanwhile, has been noted by corporate marketers publishing their own credible content – also called content marketing – at the expense of the news industry. Corporate marketers segment their audiences by developing detailed personas of various types of people they are targeting, based on business and personal needs rather than whether clients or customers wear skirts. In this postfeminist world, isn’t it time more businesses got over the gender divide and focused on carving up sectors into niches in other ways? Sheedy’s research on risk management suggests that this is a much more sensible approach on which to base decisions. – Jackie Cameron

By Elizabeth Sheedy*

There’s a popular theory called the “Lehman Sisters Hypothesis” that says well known bank failures (like the Lehman Brothers collapse) wouldn’t have happened if there were more female staff in management. Our research suggests that increasing female staff is, on its own, unlikely to change the way risk is managed in banks.

The Lehman Sisters Hypothesis relies on the research-proven fact that women are, on average, more risk averse than men. It implies that bringing more women into banks will lead to better risk management and reduce the possibility of bank failure or scandal.

While female staff may be more risk averse on average, our research shows many of them are just as risk tolerant as their male counterparts. These are the women who tend to make it to the management roles where risk management decisions are made.

It’s important to note that women already comprise more than half the workforce in the banks we analysed, but they are under-represented at senior levels and in institutional banking. This is the arm of banking that offers complex financial advice and services to large institutions.

From July 2014 to August 2016 we collected survey responses from 36,223 employees from ten banking institutions headquartered in Australia, Canada and the United Kingdom. Our unique data set encompasses a cross-section of staff in all business lines and levels of seniority.

Using survey methods, we asked bank employees to self-report their risk management behaviour. For example, we asked about compliance with risk policy, speaking up about practices that may be inappropriate and reporting risk events. People will often not admit non-compliance, even in an anonymous survey so we took great care with the wording to illicit a truthful response. For example, one of our questions read:

Sometimes I need to bend the rules in order to get my work done (Agree/Disagree).

Using similar survey methods we also assessed the extent to which each staff member was risk-loving or risk averse – in other words, their individual risk tolerance. We found people who are more risk loving are generally less likely to display good risk management behaviour.

Once we accounted for differences in risk tolerance, women are no more likely than men to behave well.

We found older workers are more likely to exhibit good risk management behaviour, even after accounting for the tendency for older people to be more risk averse. For example they are more likely to question business practices that may create poor outcomes down the track, such as making risky loans or selling products to customers who don’t fully understand them. Perhaps older workers, having lived through so many economic cycles and scandals, simply “get” risk management more than the young.

We also studied the risk culture in more than 300 different units within the banks. Risk culture is the perception among employees that risk management is genuinely valued and practised. So it’s not just a glossy statement on a website to satisfy regulators but the “way we do things around here”.

Our results show there isn’t any relationship between the gender mix of the units and the risk culture. We also didn’t find any association with the gender of the leaders of business units and risk culture.

The problem with the ‘Lehman Sisters Hypothesis’

The hypothesis assumes all women are risk averse, yet women themselves are a diverse bunch. We found that risk tolerance varies between men and women when they are at junior levels but these differences disappear as you climb the corporate ladder. At senior levels the women are just like the men in terms of risk tolerance, so the way they manage risk is also similar. More women who behave like men does not change anything.

In order to prosper in a stereotypically masculine culture female staff may need to have stereotypically masculine attributes, or they may need to adapt to the culture around them.

Essentially it all comes down to gender stereotypes. Risk-taking is a stereotypically masculine attribute, not a feminine one, but these days women are increasingly not conforming to this stereotype. This may help explain our findings regarding women in management positions in banks.

In a study published in 2011, researchers Renee Adams and Patricia Funk examined a sample of directors, finding that female directors are significantly more risk loving than their male counterparts. In other words, the women who make it to the very top don’t conform to gender stereotypes. Not surprising when you think about it.

The research literature on organisational culture suggests that cultures form in response to the business environment – as a way of ensuring success in that environment. To suggest that bringing in a few more women is going to change things is naïve to say the least.

In fact it’s far more likely that the reverse will happen. New workers are unlikely to succeed if they do not share the values of the existing culture. Indeed the process of selection will make it hard for “different” staff to even enter the organisation.

Creating a culture that values risk management is a huge task for banks all over the world. The global crisis that began in 2007 was a wake-up call that the focus on short-term profits had gone too far. Subsequent reforms to risk management practices and regulations have been radical and far-reaching.

I would like to think that women have earned their place in the modern banking workforce and we need to continue efforts to ensure they reach the senior roles they richly deserve. Women should be welcomed on their own terms, regardless of whether they conform to traditional feminine stereotypes, whether they wear skirts or trousers. But let’s not expect women, by themselves, to change the culture of banks.The Conversation

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