Women in Upper Echelons of Management, Tenure and Legal Risk
| Published date | 01 April 2014 |
| DOI | http://doi.org/10.1111/j.1467-8551.2012.00847.x |
| Date | 01 April 2014 |
Research Note
Women in Upper Echelons of
Management, Tenure and Legal Risk
Shuji Bao, Stav Fainshmidt, Anil Nair and Veselina Vracheva
Department of Business Administration, Constant Hall 2030, College of Business and Public Administration,
Old Dominion University, Norfolk, VA 23529, USA
Corresponding author email: anair@odu.edu
Integrating risk, gender diversity and upper echelons literatures, we examine whether the
presence of women in upper management (top management team (TMT) and board of
directors (BOD)) and the tenure of TMTs and BODs are associated with the risk of
lawsuits. An analysis of data from firms in the US retail industry shows that the presence
of women in TMTs and BODs and the tenure of TMTs and BODs are negatively
associated with legal risk, but longer tenured BODs with more women had a positive
impact on lawsuits. Implications and suggestions for future research are offered.
Introduction
We investigate whether the presence of women in
a firm’s top management team (TMT) and board
of directors (BOD), and the tenure of members in
these two groups, impact the firm’s legal risk
exposure. Risk is an important factor that con-
fronts managers and firms, and is a vital area of
research within management (Bromiley, Miller
and Rau, 2001). Knight (1921) conceived risk as a
situation where there exists a well-defined prob-
ability of potential outcomes. In particular, a firm
is exposed to ‘legal risk’ when it is the subject of a
claim or proceedings due to some infringement of
laws or regulations, or because of some action
that gives rise to civil liability (McCormick, 2006).
Recent examples of such lawsuits include the
gender discrimination lawsuit against Wal-Mart,
product safety lawsuits against Toyota (Ramsey,
2010), shareholder lawsuits against Halliburton
(Economist, 2011) and environmental pollution
lawsuits against British Petroleum (Perez, 2010)
and Massey Energy (Maher, 2012). Due to the
significant financial consequences and impact
they may have on firm reputation, managers are
interested in identifying factors that influence
such legal risks.1
While lawsuits against firms are becoming more
frequent with ever higher financial and reputa-
tional consequences, to our knowledge no study
has examined whether the presence of women in
TMTs and BODs impacts such legal risks.2It is
Authors are listed alphabetically. An earlier version of the
paper was presented at the Southern Management Asso-
ciation annual conference. The paper has benefited from
the comments that we received from conference reviewers
and participants. We thank Dr David Selover (Depart-
ment of Economics) and Dr Ed Markowski (Department
of IT and Decision Sciences), both at Old Dominion
University, for assistance with data analyses and interpre-
tation. We thank our colleagues, especially Dr Lance
Frazier, for feedback on earlier versions of the paper.
1Legal risk is one among many risks that firms face.
Increasingly, firms are adopting enterprise-wide systems
and processes to identify and manage such risks (Beasley,
Branson and Hancock, 2010). Risk management has
become so critical that recently Standard and Poor’s has
also started rating firms’ enterprise risk management
effectiveness.
2We did a search of the ABI/Inform/EBSCO databases
for the following terms in the abstract: ‘top management
team’, ‘board of directors’ and ‘upper echelon’ in com-
bination with ‘legal risk’, ‘lawsuits’ and ‘litigation’. We
found no published studies in academic journals linking
the presence of women on TMTs and BODs as well as
the tenure of these groups to legal risk as defined in the
present study.
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British Journal of Management, Vol. 25, 388–405 (2014)
DOI: 10.1111/j.1467-8551.2012.00847.x
© 2012 The Author(s)
British Journal of Management © 2012 British Academy of Management. Published by John Wiley & Sons Ltd,
9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA, 02148, USA.
especially important to examine this issue because
the role, characteristics and impact of women in
firm governance are drawing more attention as
they occupy more positions in upper manage-
ment. For example, Hillman, Cannella and Harris
(2002) noted that female directors are more likely
to come from non-business backgrounds, hold
advanced degrees and join multiple boards at a
faster rate than male directors. Yet, as the Davies
Report (2011) noted, in 2010 women made up
only 12.5% of the members of the corporate
boards of FTSE 100 companies, while Vinni-
combe et al. (2008) reported that only 15% of
Fortune 500 firms have a woman on the BOD.3
The percentage of women in upper management is
low in other countries as well (Singh, Vinnicombe
and Terjesen, 2007); for example, Holst and
Schimeta (2009) found that only 2.5% of the
executive board members of the top 200 compa-
nies in Germany are female. That is, while women
are now increasingly seen in TMTs and BODs,
they still constitute a minority in upper manage-
ment positions (Branson, 2006). Indeed, the
absence of women in TMTs and BODs, despite
their larger presence in the workforce, is now
becoming more conspicuous. For example, the
recent filing for an initial public offering (IPO) by
US firm Facebook led investors to express con-
cerns about the lack of women on its BOD
(Letzing and Lublin, 2012). In such an environ-
ment, it is imperative and interesting to examine if
the presence of women in strategic settings
impacts firm behaviour and outcomes.
Kanter (1977) was one of the first to put forth
the idea that changing the gender composition of
TMTs may have implications for organizational
issues. Yet, the influence of gender diversity (as
a measure of TMT/BOD heterogeneity) (e.g.
Naranjo-Gil, Hartmann and Maas, 2008; Vinni-
combe et al., 2008) on firm legal risk has been
largely overlooked. Instead, most studies have
used variables such as age, functional back-
ground, educational background and tenure
(Bantel and Jackson, 1989; Finkelstein and Ham-
brick, 1996) in the study of firm risk behaviours
such as innovation and international diversifica-
tion. Furthermore, previous literature examining
the risk propensity of women in strategic settings
yielded inconsistent results, possibly due to the
lack of incorporation of interacting group demo-
graphic variables (Johnson and Powell, 1994;
Maxfield et al., 2010; Muller-Kahle and Lewellyn,
2011). Indeed, Huse (2008) argued that studies
should focus on the effects of women on interme-
diate organizational outcomes and take into
account group dynamics. Thus, the research ques-
tion driving this paper is: does gender diversity
within TMTs/BODs, and tenure of these groups,
impact firms’ legal risk exposure? We expect that
our findings will contribute to the literature on
TMTs, BODs, organizational demographics, cor-
porate governance and risk.
The rest of the paper is organized as follows. In
the next section we review the literature on upper
echelons, organizational demographics, gender
diversity and tenure, and tease out implications
for firm legal risk exposure. Next, we discuss the
methodology and results of the study. In the final
section, we interpret the findings and discuss the
study’s limitations. We conclude with implica-
tions and suggestions for future research.
Theory development
In their classic paper, Hambrick and Mason
(1984) proposed that background and character-
istics of upper-level managers would be associated
with organizational outcomes. Recent interest in
corporate governance, sparked by corporate fail-
ures such as Enron, and the 2008 financial crisis
has led to renewed interest in the role of upper
management in organizations (Muller-Kahle and
Lewellyn, 2011). The study of upper management
now includes a focus on the roles of TMTs and
BODs in strategy processes (Forbes and Milliken,
1999; Judge and Reinhardt, 1997). Examining the
BOD’s influence seems appropriate since strategic
decisions often involve not just top management
executives but non-executive directors as well
(Daily and Schwenk, 1996; Jensen and Zajac,
2004). Studies have found that the BOD has direct
influence on not just a firm’s strategies (Balta,
Woods and Dickson, 2010; Judge and Zeithaml,
1992) but its TMT as well (Boeker and Wiltbank,
2005; Daily and Schwenk, 1996).
As a consequence, a vibrant stream of research
has emerged within management that examines
how TMT/BOD cognition, values and dynamics
3The report argues the need for more involvement of
women in upper management positions based on studies
that found a positive impact of such presence on organi-
zational outcomes.
Women in Upper Echelons of Management 389
© 2012 The Author(s)
British Journal of Management © 2012 British Academy of Management.
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