Who Gets Put In Charge When Businesses Are Doing Poorly


It’s not necessarily a fluke that Mary Barra became General Motors’s first female CEO right before a massive recall that has been roiling the company ever since. Women and people of color are more likely to be promoted to struggling companies, a new study finds. Worse, if they can’t engineer a big turnaround and performance declines during their tenure, they’re likely to be replaced with a white man, which the authors call the “savior effect.”

Alison Cook and Christy Glass of Utah State University looked at a dataset with all of the CEO transitions in Fortune 500 companies between 1996 and 2010 and the gender, race, tenure, and prior experience of the chief executives. They also took into account variables that could impact their findings, such as how big each company was, how many women and minorities were in management in the relevant industries, whether the new CEO came from inside the company or outside, and others.

They found that no matter the previous performance period they looked at — the one-, two-, and three-year averages — return on equity, or ROE, was significantly negative before a woman and/or person of color took over as CEO. “Given the consistency and significance of the findings with regard to a firm’s ROE, the findings suggest that occupational minorities,” or in other words, women and people of color, “are more likely to be appointed CEO in struggling firms,” they write.

Why would that be? They note that past research has found that decision makers view women and people of color as less capable of leadership than white men, but that poor performance may make them think they need different qualities. For example, they may want to bring in women because women are assumed to be sensitive and cooperative, which may be more valuable in tough times. Men of color are also thought to be more warm and relational.

The researchers also found bad news for any CEO who’s not a white man on the other end: if a woman or person of color oversees a company with poor performance, he or she is likely to get replaced by a white man. The return on equity for all averages before a white man replaces a woman and/or person of color is significantly negative, the data show, but it’s positive when one white man replaces another one. It’s also positive before a woman or a person of color replaces the same. “These findings suggest that occupational minorities face greater challenges when appointed CEO and are provided few degrees of freedom with which to establish their leadership capabilities,” the authors write.

White men, they note, are “the business leader prototype,” making others think they’re more effective, competent, and qualified. And when they adhere to those expectations and perform well, those ideas are only reinforced. The opposite works against women and people of color, who are already assumed to be less capable, so “confidence in their leadership is tenuous,” the authors write. The high visibility of being the “first” or the “only” in a given position, and in particular a highly scrutinized position like CEO, also likely works against them during their tenures. They may run up against resistance or even hostility, and they are less likely to benefit from the networks that would give them greater support and information from their colleagues and subordinates.

Interestingly, the researchers didn’t find evidence that women and people of color last for shorter periods of time in these top roles. That may be, they note, because all CEOs are experiencing shorter tenures, and also because those few women and minorities who do make it to the top have overcome major hurdles and may therefore be “exceptional.”

This illustrates just how extraordinary, in the literal sense of the word, non-white male CEOs are. In the whole set, there are just 21 women CEOs, four of them of color, and 40 CEOs of color (including those four women). And over the course of those 15 years, 551 CEO appointments were given to a white man, while just 57 were given to a woman and/or person of color. Twenty-eight times, a white man took over from a woman or person of color, but just four times did the latter take over for the former. Women, however, are slowly making progress, getting appointed 12 times over the most recent five-year time period compared to nine in the ten years before that.

That progress is certainly sluggish, though. They’ve made up less than 15 percent of executive officer positions at Fortune 500 companies for the past four years. And even when they get into the C-suite, women are still more often relegated to support roles. Things are even slower for people of color.

Other past research has similarly found that even when progress is made, women and people of color are likely to be given the top job in times of distress. A study of British companies in the FTSE 100 found they were more likely to promote women to their boards if they had just experienced a period of bad performance. Another found they’re more likely to pick a woman after a loss signaling underperformance. Yet another also found people of color are also more likely to be promoted to CEO if a firm is performing poorly.

Besides Mary Barra, we have some other memorable examples of this phenomenon. Two different women were given rare leadership roles in finance right before the crisis hit. The first female CEO of Sunoco, Lynn Laverty Elsenhans, took the job after the company’s shares had fallen 52 percent. The first female CEO of Xerox, Anne M. Mulcahy, got her job when the company was $17 billion in debt and under investigation.

A different study also found that female CEOs are more likely than male ones to be forced out of the company when they leave. There are some examples of this problem too: the first head to roll after JP Morgan’s multi-billion failed London Whale trade was a woman, even though the bank’s CEO was a man and the person who made the trade itself was also a man.