Did Macquarie just leap from the “glass cliff”?

Correlation doesn’t equal causation. But sometimes it does. I would like to know whether the board of Macquarie are Freakonomics listeners or just unwitting participants in a glass cliff experiment – Australian edition.

The ABC sets the scene (emphasis mine):

Shemara Wikramanayake is set to become the first female chief executive of Macquarie Group, taking over from Nicholas Moore, whose decade-long stint in the top job is coming to an end.

The retirement of Mr Moore and appointment of Ms Wikramanayake, will make her the country’s top female executive at a time of intense regulatory and economic headwinds for financial companies.

The stock market has some Freakonomics listeners:

And for those unaware of the glass cliff, I’ll hand over to Freakonomics. First some background:

RYAN: In November 2003, the Times in London printed an article that was looking at how women were performing in the top companies on the London Stock Exchange. And what they were saying is that companies that had more women on their boards of directors tended to be worse, in terms of their average annual share price, compared to those companies that had less, or indeed no women. And their conclusion was that women were wreaking havoc on company performance.

RYAN: And instead of looking at how many women were on their boards of directors, we looked at when women were appointed, and then also when men were appointed as well. And then we could look at the performance beforehand and afterwards.

RYAN: If the Times article was correct, we should see that after women were appointed to these boards of directors, share price should go down. But actually what we found was the opposite. What we found was when companies had been doing poorly, when their share price had been declining, they then appointed women to their boards of directors. So what we found was a really different causal problem. Rather than women wreaking havoc on company performance, what we found was when companies were doing badly, they were much more likely to appoint women. It was a very different narrative from the one that the Times was putting forward. But it also opened up more questions than it actually solved.

So, in stepped Christy Glass to research this further:

GLASS: We found that white women and people of color are significantly more likely than white men to be promoted C.E.O. to weakly performing firms.

For instance, when a firm went looking for a new C.E.O., what was their return on assets and return on equity looking like? Did Glass and Cook find — as Ryan and Haslam had found — that women are more likely to get the top job when a firm is in trouble? They sure did:

GLASS: We found that white women and people of color are significantly more likely than white men to be promoted C.E.O. to weakly performing firms.

“Weakly performing firms,” which, if the female C.E.O. didn’t turn them around, often replaced her with a man.

GLASS: We termed this the “savior effect.” In other words, the firm experimented with this nontraditional leader, perhaps trying to signal it was headed in a bold new direction, that it was aggressively going to address performance declines. And if that doesn’t happen, these leaders tend to be blamed and replaced, back to normal — bringing in the white male, typical leader to then navigate the firm out of crisis.

This isn’t just limited to stocks:

Other researchers began looking for evidence of the glass cliff beyond the corporate world. They found it — in education, where women were more likely to have leadership positions in failing school districts. They found it in political elections, where women are more likely to run in unwinnable contests; and in political leadership, where women are more often elevated during periods of political instability. So there’s plenty of evidence for the glass-cliff phenomenon.

Some of the experiments used a clever trick.

RYAN: We had two incredibly well-qualified candidates for the job, one man and one woman. We gave their C.V.s, and descriptions of their experience. We gave photos of them, and we’d very carefully made sure that they were absolutely equally qualified for the job. And in fact, what we had was, we had two C.V.s, and we just switched their names on them, really, for every second participant in the study. And then we said, “Okay, who do you want? In a scenario where everything is doing well, who do you want: the man or the woman? And in a scenario where things were going badly, who do you want?”

And what’d they find?

RYAN: What we found was when everything is going well — when share price was going up, or when everything is hunky-dory — they were almost 50-50 likely to choose the man or the woman. But when things were going badly — when there was crisis on the horizon, where there’d been criticism, and where there was risk involved in the leadership position — they almost exclusively chose her. So we can conclude from that there’s some sort of preference for women when all is going badly.

But Ryan does not interpret this preference as a willful sabotage of the female candidates.

The podcast goes into a lot more detail, but the guts of it is that when a company is either in trouble or about to be in trouble that appointing a female or minority is a natural reaction for boards.

I wish Ms Wikramanayake all the best – Australia has a dire need for more diversity in CEO ranks – and hope fervently that the Macquarie board isn’t running a glass cliff experiment.

Damien Klassen is Head of Investments at the Macrobusiness Fund, which is powered by Nucleus Wealth.

The information on this blog contains general information and does not take into account your personal objectives, financial situation or needs. Past performance is not an indication of future performance. Damien Klassen is an authorised representative of Nucleus Wealth Management, a Corporate Authorised Representative of Integrity Private Wealth Pty Ltd, AFSL 436298.

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  1. Spinning PiledriverMEMBER

    Probably the real issue is the timing of Nicholas Moore’s retirement. Does he think the top is in?

      • Gillard ruthlessly took the PMship off Rudd. She was no victim. Sure did her best to play the sexism & “misogynist” card though. Didn’t get her far except with the lefties.

      • Davey, what a load of crap. Rudd was dumped because of polling.

        Gillard was / is a better and stronger person than any of our past PMs from the last 40 yrs. Just look at her behaviour compared to the others since being dumped.

      • Of course Gillard couldn’t have taken the leadership off Rudd if he was popular. This doesn’t mean that she didn’t take it off him in the most cunning and ruthless of manners.

        As for her being the ‘best’ PM, yours is clearly a minority opinion, given her consistently terrible polling — unless of course you believe that her lack of popularity was due to most Australians being a bunch of sexist misogynists (which some lefty loonies continue to claim).

      • Gillard and Rudd were as useless as each other. There hasn’t been a good PM of either persuasion for that same time period.

        And as for her behaviours post politics? Jumping in bed with Hillary Clinton and the Clinton Foundation is probably the lowest bar you could set.

        But white knights gunna white knight.

      • SupernovaMEMBER

        Davy, the mere fact that Gillard did play the sexist/misogynist card means SHE PLAYED THE POWER-VICTIM CARD. As long as women continue to power-play this card, they have a credibility problem. Unfortunately this type of useless research keeps too many female academics (who couldn’t even run a corner store) employed. More waste in our universities. Gail Kelly never had to play the victim-card.

      • Supernova: I remember an interview with Judge Judy (a lady who was a very successful ‘real’ judge and is now one of the most highly paid entertainers for her being a tv judge). She was asked about feminism etc and said she doesn’t identify as a feminist, she emphasised that success should be based on one’s own self-worth and abilities, not on some interest group.

  2. Wino Shinyface

    NSW labor putting in Kristina Keneally – that was a hospital pass

    ^^^ beat me by 2 minutes lol

  3. “Australia has a dire need for more diversity in CEO ranks”

    Cringe. Can she do the job is all that matters.

    • That was my thought. Why do we need diversity as a stand alone virtue?
      Why not just smart, ethical people who can do the job?
      Apparently she is very smart and good luck to her.

      • Diversity doesn’t have to be about gender and race. It is important though. In technical and creative fields you can really see the difference. Sometimes our approaches to design or problem solving are a bit incestuous. Just look at what Steve Jobs brought to human/computer interaction. Sure we had palm pilots and stuff before, but people can get stuck in solving things the same way.

        Fiction gets this too. Story tellers start repeating themselves, relying on tropes etc. Fresh blood helps us break from a rut.

        In the case of management, does anyone who works in an office REALLY think the current way of doing things is working? I don’t want to write a long rant on this topic, but current leadership is pretty woeful. Lots of “my way or the highway”, “He who rules knows best” etc. How many offices and organisations are glued together by the women in the lower ranks who keep things rolling along?

        I don’t care much about ratios- I know some jobs are more appealing to some people than others. I do think there is a place at the top for women. Not just women who are more masculine than men, but a diverse set of women. For one thing, its probably harder to get kompromat on women because you can’t just flash a dick at them to flip them. How many men have screwed up their companies because they couldn’t keep it in their pants? Either screwing subordinates or being an adrenaline junky with company money? The ‘best’ individual is just propaganda. The CEO, board appointments and pre-selections I’ve seen do not seem to be about ‘merit’ from a productive sense.

  4. reusachtigeMEMBER

    Umm, Mac Bank have been going gangbusters and their share price has reflected this so this argument totally falls down here. I wouldn’t call it an example of this thesis whatsoever. If anything it’s a rebuttal.

    Anyway, more surprisingly than a chick getting the job is someone with the name Shemara Wikramanayake. Real Aussies don’t want to deal with that tongue twister. Also, she’s tiny. Little people don’t get jobs like this. These are the real questions, not that she’s a bird.

  5. Nonsense, by many accounts Ms Wikramanayake is a more than capable replacement and has been slated as such for years, She is an old school money-quarry employee (1987!), part of an exclusive executive club and runs one of the banks most profitable divisions. I believe over the last few years, her salary was only slightly less than the Moore’s?

    The market reaction has noting to do with her and everything to do with the Moore retirement omen.

    • Ronin8317MEMBER

      She may indeed be the exception, but.. Compaq/HP, Yahoo,etc established some really bad precedent. That is the US though, and Australia may be different.

      • Were they they same circumstances? Were those women slated as CEO years before? Did they already have a signifficant track record with the company, at the time of their appointment was the company’s performance as strong as Macquarie’s (not withstanding any forward predictions on the market)? I believe the answers are largely no, hence this reeks of the same logic leaping, spurious correlation claiming, virtue signalling that this site ordinarily rallies against.

    • You’ve got to love the insolence in appointing an insider with over 30 years in the gig as ‘diversity’, and then pretending something will change.

      Macquarie has been neck-deep in the rape of Australia, and these scum have the gall to call this ‘diversity’. Then again, I suppose it takes an actual racist to call a 30 year insider ‘diverse’ because she has a different skin/vag. Literally racist!!!

    • Damien KlassenMEMBER

      Agree that Ms Wikramanayake has all the credentials, experience and capacity to do a good job.

      My point was more that maybe the Board knows about some cockroaches that the Royal Commission will uncover when it lifts the rug – but given the dark turn that the comments have taken I’m sorry I posted it.

      The research is pretty clear that: (1) more diverse companies do better from a profit perspective (2) when you control for other factors there is little difference between performance of male and female CEOs.

      Apologies in advance, but I’m going to remove any comments here that are walking too close to the line on racism and sexism.

  6. SupernovaMEMBER

    Not read these papers, but if it’s similar to most recent social research, its’s significantly questionable. Why not ask the question why these women accepted the top job at a particular time…..knowing the company was facing headwinds?

      • SupernovaMEMBER

        No, I’m blaming humanity-academics (often female) for producing too much “women-victimhood” literature, often influencing or motivating women to accomplish rolls from a position of victimhood, which in my mind makes them especially vulnerable to accept CEO positions at times when companies face significant headwinds.

    • Because that would require feminists to hold women to an equal standard of moral agency that it holds men to. And we know empirically despite the sophistry about a never clearly defined end point labelled ‘equality’, that there are plenty of inequalites that feminism has zero intention of ever caring about.

  7. UrbanWastelandMEMBER

    Supernova, the reason is a great question.

    My first thought was this: men with skillsets, qualifications, and experience of a certain level see that the company isn’t doing well and stay away. Women with equivalent or better skillsets etc. are more likely to go for the position regardless as a chance to break through…

  8. FirstNameOnly

    This perfectly explains President Obama. When the US saw trouble on the horizon, they went with a ‘non-traditional’ leader. though he did many great things, many considered he did not save the situation sufficiently, so they voted in a ‘traditional’ leader, rather than go with another ‘non-traditional’ leader.

    So actually, it explains Obama, Trump and Hillary.

  9. The glass cliff may well be a thing but the appointment of Ms Wikramanayake sure ain’t an example of it. Macquarie share price is up 50% in the last year and has trebled in the last five. She’s been at the bank for 30+ years, has been the star for the last decade or so, she’s been the CEO in waiting for some time now.

    If you want to talk about someone being appointed appointed facing tough headwinds, how about Nick Moore stepping up to CEO in May 2008?