Companies in crisis often appoint female executives to send a signal to investors and observers that they are ready to make substantial changes. Such signaling appointments set up women to fail, creating a ‘glass cliff’ effect that further undermines attempts to overturn male-dominated leadership in business.
Prior research has revealed a ‘glass cliff’ phenomenon: Companies in crisis situations are more likely to appoint women top managers than companies that are not in trouble. These disproportionate crisis appointments often set up women executives to fail.
Some have argued that companies in crisis appoint women as top managers because of stereotypical beliefs by hiring decision-makers that women attributes (e.g., greater emotional sensitivity and interpersonal skills) are more suitable for handling crisis situations.
Based on their analysis of more than 26,000 top executive (CEOs, COOs, CFOs and board chairs) turnovers in nearly 4,000 U.S. firms over a 16-year period, researchers from LMU Munich and the University of Konstanz contend that stereotypical beliefs do not fully explain the glass cliff effect.
The problem is that rather than seeking the best people—male or female—to help rescue a company in trouble, companies decide to appoint female top managers in periods of crisis in order to signal to investors and other observers that they are prepared to make significant changes in response to the challenges they face.
One indication that companies in crisis hire women executives as a signaling move is the language of the press releases related to the appointment. In the more than 130 relevant press releases analysed, companies deliberately emphasized change in the appointment announcement of the new leaders.
Signaling theory offers further evidence of the role that signaling plays in crisis appointments of women. Signaling theory suggests that signaling decisions are influenced by three contextual elements: the signaler, the signal, and the receiver. In this case, the signaler is the company in crisis; the signal is to show a willingness to break from the past and embrace change; and the receivers are the company’s investors.
Analysis of the 26,000 top management appointments in the study’s database demonstrates that all three facets influence whether a company decides to send a signal of change through female top management appointment:
The signaler. The data showed that companies in crisis hired women top managers when women were absent from their current management ranks. After all, hiring a woman CEO when there were already women in executive positions in the firm would not signal a willingness to change.
The signal. The appointment type—that is, whether an outsider or an insider is appointed—is an aspect of the signal itself. Hiring an outsider reflects a change mindset; however, outsider appointments often have more difficulty implementing change than insider appointments who are familiar with the firm—and the firm familiar with them. This, companies in crisis are more likely to appoint insiders to send a stronger message that the company is serious about change—an assumption confirmed by the data.The receiver. For a signal to work, the receiver must be paying attention. Using the volume of google searches for the company in the year prior to the appointment as its measure of investor attention, the study found that glass cliff appointments were more likely when investors were paying attention to the company’s troubles—and its responses.
As stated above, a top manager appointed by decision-makers focused more on sending a signal rather than finding the best candidate for the firm has been, in many cases, set up to fail. Companies can take two important steps to avoid the temptation of signaling appointments.
Make the appointment process more transparent and formalized. The hiring process of top managers in many firms is informal and conducted behind closed doors, allowing less than rigorous parameters to guide the appointment decision.
Increase awareness of the potential for signaling as a deciding factor. Search committees and board members may not be aware of how signaling considerations may be subconsciously influencing their decisions. Or they may not be aware of the glass cliff effect that results from signal-driven appointments. Greater knowledge of these issues can lead to better decisions—for the new appointee and the firm.
Some have argued that setting up gender quotas in a company—e.g., requiring all business units to have a certain number of women managers—will counteract the glass cliff effect. As noted above, the presence of women managers reduces the impact of a female appointment in top executive positions. However, appointing women beyond the quota might still serve as a signaling function; in this situation, as in many others, the effectiveness of gender quotas is unclear.
Finally, to consider the signaling impact of a candidate is not inherently negative. Rather than relying on broad demographic categories, however, decision-makers should look at the nuanced, individualized attributes of a candidate that would send the desired signal. The resulting appointments would be a better fit for the company—and reduce the chance for failure.
Shine Bright Like a Diamond: When Signaling Creates Glass Cliffs for Female Executives. Max Reinwald, Johannes Zaia, Florian Kunze. Journal of Management (March 17, 2022).
Further Relevant Resources:
Max Reinwald’s profile at LMU Munich School of Management
Johannes Zaia’s profile at University of Konstanz
Florian Kunze’s profile at University of Konstanz
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