April 4th, 2013 | 1:00 pm

Do Women Really Make Better Decisions than Men?

filed under Managing Change

Businesswoman holding presentationBy Melissa J. Anderson (New York City)

According to a new study, companies would be foolish not to hire more women to their boards of directors. The reason, as the authors say, is that women are better at making complex decisions: “women simply have the capacity to make better directors and their presence on corporate boards has been linked to higher organisational performance.”

The research, published in the International Journal of Business Governance and Ethics was based on the results of a test given to 624 board directors. The Defined Issues Test (or DIT) is used to measure three types of decision-making styles: personal interest, normative, and complex moral reasoning. Male directors were significantly more likely than women to make use of normative decision-making on the test. Female directors were significantly more likely than men to base their decisions on complex moral reasoning (CMR).

The authors, Chris Bart, DeGroote School of Business, McMaster University and Gregory McQueen, School of Osteopathic Medicine in Arizona, A.T. Stills University, believe, that in a board setting, this makes a big difference.

They write, “It is a superior form of reasoning which logically leads to the higher quality decision making reflected in higher rates of return and lower rates of bankruptcy. And our research shows that CMR is what separates the male and female director.”

Different Types of Decision-Making

When Bart and McQueen gave the test to over 600 board directors, they didn’t expect to see a big difference in the way men and women directors made decisions. To take the test, people respond to a number of scenarios, describing what they would do when presented with a specific challenge, and why they would do it that way. For example, one of the challenges was what they would do if they were villagers confronted with a food shortage.

Their answers were analyzed based on three different decision-making styles: personal interest, normative, and complex moral reasoning.

The least common decision-making style was personal interest – which Bart and McQueen say is a good thing. After all, we don’t want board directors simply advising companies to do what’s right for themselves.

Normative decision-making is based on adhering to “business as usual” – and this was the second most common decision-making style for all of the respondents. What’s more, men were most likely to employ this style than women on the test. Because women were less likely to engage in normative decision-making, that means they are more willing to rock the boat than men.

Finally, the most common type of decision making that board directors were likely to use was complex moral reasoning, with women more likely use it than men. The authors say this is the type of reasoning we should most like to see in board directors. They write:

“Our results show that the women directors prefer to function using a significantly higher level of complex moral reasoning than the men. This means that female corporate directors are significantly more inclined to work through decision-making by taking the interests of multiple stakeholders into account in order to arrive at a fair and morally consistent decision. They will also tend to use cooperation, collaboration, and consensus building more often – and more effectively – in order to make sound decisions.”

Women, it seems, are more likely to provoke deeper discussion on complex issues – and this is exactly what board directors are supposed to do.

Key Questions

A few key questions arise from the study. First, we have to ask why women are more likely to use complex moral reasoning in their decision-making practices. Is it because, as members of a non-dominant group, they place less trust in the systemic behavior behind normative decision-making? Is it because to get into the boardroom in the first place, women just have to be better, and are thus more likely to engage in complex thinking patterns? Is it something innate to women’s brains?

Whatever the reason, it’s interesting to note that in the 1980s, the same test turned up lower scores for women on complex moral reasoning. In the 1990s, men and women’s scores on complex moral reasoning were roughly even. Whatever is going on to produce this change, it must be something cultural.

Nevertheless, companies may be at a disadvantage if they are not actively seeking women for director positions. That means they are not fulfilling their duty to their shareholders. As Bart and McQueen suggest:

“Nominating committees, therefore, which ignore this fact may actually be shortchanging their investors’ potential for future returns. On a larger scale, boards may even be considered derelict in fulfilling their fiduciary responsibility to act in the best interests of the organisation because, with a limited number of female directors, they are ignoring an easy and obvious way to increase their board’s effectiveness and their organisation’s probability for success.”

Based on all of the research showing that women are good for business, we have to wonder why more companies aren’t moving faster – and in some cases aren’t moving at all – on this issue.

The finding around normative decision-making could indicate one reason for the slow acceptance of women in board positions. Because men tend to prefer normative decision-making compared to women, whether consciously or subconsciously, men may be keeping women out of the boardroom so they have fewer questions to answer.

Bart and McQueen ask, “Could this be one of the prime motivators for why male dominated boards resist having women on boards? They do not want to have to deal with the challenge of being challenged.”

2 comments

  1. Alice

    I’m all for good evidence showing the benefits women bring to organisations, but this study is just bad… They are making claims about average gender differences based on a sample that is not representative of the population.

    “women simply have the capacity to make better directors and their presence on corporate boards has been linked to higher organisational performance.”

    Those data linking women on boards to higher performance are correlational, not causal. More specifically, they are the result of financially successful companies promoting more women to their boards. In fact recent analyses with proper controls tend to show no relationship between women on boards and corporate performance, sometimes even a negative relationship:

    Adams, R. B., & Ferreira, D. (2009). Women in the boardroom and their impact on governance and performance. Journal of Financial Economics, 94, 291-309.

    Antonakis, J., Bendahan, S., Jacquart, P., & Lalive, R. (2010). On making causal claims: A review and recommendations. The Leadership Quarterly, 21, 1086-1120

    Ahern, K., & Dittmar, A. (2012). The changing of the boards: The impact on firm valuation of mandated female board representation. The Quarterly Journal of Economics, 127, 137-197.

    The studies Bart and McQueen reference about corporate boards are from Catalyst, who have actually dropped the argument because of the realization of their incomplete research methods.

    Claims that one sex is inherently better at making decisions or at complex moral reasoning based on these small, limited datasets from management professors is completely asinine and has been further falsified by years of psychological investigation.

  2. Mark Z.

    Right. Correlation is not causation, though it can be if there are good controls. This study suffers from what economists call endogeneity.

    If a variable (gender) shares a common cause (e.g., big companies) with the outcome, then what is driving the outcome might not be gender but the omitted common cause. The references above are really good…I found a an excellent podcast, done by Prof. Antonakis, and spoken in simple English, that explains the problem of “endogeneity”:

    http://www.youtube.com/watch?v=dLuTjoYmfXs