An Economic Crash Women Might Have Helped Avert

By Debora Spar
Sunday, January 4, 2009

Let me begin with the caveats: I like men. My husband is one, as are my two sons. I have spent most of my career surrounded by men, and I have no major complaints. But as the financial debacle unfolds, I can't help noticing that all the perpetrators of the greatest economic mess in eight decades are, well, men. Specifically, they are rich, white, middle-aged guys, same as the ones who brought us Watergate in the 1970s, the Teapot Dome scandal in the 1920s and, presumably, the fall of Rome.

One might argue, of course, that the preponderance of men behaving badly on Wall Street is just a mathematical corollary of the preponderance of men doing anything on Wall Street. But the truth is more complicated. Although the Y-chromosome is undeniably overrepresented along all tiers of finance, it is particularly overrepresented at the highest levels of power and in those sectors most deeply implicated in the current crisis. A Catalyst Research study last year found that women make up almost 60 percent of the workforce at Fortune 500 finance and insurance companies but account for only 17.9 percent of corporate officer positions and none of the chief executive positions. In the world of hedge funds, women are notable largely for their absence.

Clearly, some greater force is at work here, something more than the traditional clubbiness of Wall Street or the obstacles that still confront women juggling work and family. It may be that women perceive and act on risk in subtly different ways; that they don't, as a general rule, embrace the kind of massively aggressive behavior that brought us a Dow of 14,000 and then, seemingly overnight, a crash of epic proportions. Whether it be from a protectiveness born of biology or a reticence imposed by social norms, women may be less inclined than men to place the kind of bets that can get them in real trouble.

Conversely, women may also be more inclined to blow the whistle on others' risky business. Consider the case of Brooksley Born, former head of the Commodity Futures Trading Commission, who in 1997 called for greater disclosure and new rules to govern the exploding world of financial derivatives. She was chastised by some of the most powerful men on Wall Street, and her recommendations were ignored. But she was right.

So was Sherron Watkins, the first Enron executive to warn its CEO that the company was heading for deep financial trouble. So was Coleen Rowley, the FBI agent who prodded her superiors -- unsuccessfully -- to investigate the men who later unleashed the attacks of Sept. 11, 2001.

We don't yet know why women respond differently to danger signals -- and earlier, it appears -- than men. We don't know why women either shy away, or are effectively banned, from businesses that thrive on risk. One possibility, explored in a fascinating study published last year by John Coates and Joe Herbert of Cambridge University, is that women simply don't have the testosterone for it; on the trading floor, they deduced, higher profits literally correlate with higher levels of the male hormone. Another, examined in laboratory experiments conducted by Muriel Niederle and Lise Vesterlund at the University of Pittsburgh, is that women are far less inclined than men to bet their pay on performance, even if they have evidence to suggest that they are superior performers.

Whatever the reason, the experience of the past year suggests that we desperately need to bring more women into leadership positions on Wall Street, in politics, in regulatory bodies and in American life generally. For decades, corporations and financial firms have sponsored expensive training programs to promote more women into their ranks. They have launched much-needed maternity policies and flexible work arrangements. Most of these initiatives, however, have been pursued to make life easier for the women involved -- or, more cynically, to remove the threat of lawsuit or adverse publicity for the firms.

The financial crisis has exposed a quieter but equally pressing concern: We need women in leadership positions not only because they can manage as well as men but because they manage differently than men; because they tend -- over time and in the aggregate -- to make different kinds of decisions and to accept and avoid different kinds of risk. We need women who will say no to bad decisions based on male-dominated rivalries and clubby golf course confidences. We need women to blow the whistle when risks explode and to challenge the presumptions that too many men, clustered too closely together and sharing a common worldview, can easily indulge.

As the constant wail from Wall Street should remind us, diversity isn't just nice in theory. It makes for better business.

Debora Spar, a former professor at Harvard Business School, is president of Barnard College, a liberal arts college for women. She is the author, most recently, of "The Baby Business."

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