Does gender affect innovation?
New evidence from female Chief Technology Officers says it does
Over the past two decades, the number of women in corporate top management teams has markedly increased. As shown in Figure 1 below, a 2020 study noted that women held 26.8% of senior leadership positions in the S&P 500. As more and more women take senior roles, researchers are providing valuable updates on the impact women have when they reach senior positions. A forthcoming paper from Qiang Wu (Hong Kong Polytechnic), Wassim Dbouk (AUB), Iftekhar Hasan (Fordham), Nada Kobeissi (Long Island University), and Li Zheng (General Electric) follows this line of inquiry in a novel way. Their forthcoming paper looks at the impact women have on one of the least studied C-suite positions: the Chief Technology Officer (CTO).
Figure 1: Catalyst, Pyramid: Women in S&P 500 Companies (January 15, 2020).
The CTO is a relatively new role. It is an evolution of the Research & Development leader that has a long history, and it arose more or less in tandem with the rise of the Internet and the wave of innovation it unleashed. As the authors note, the growing clout of CTOs "has been mainly driven by the increasing strategic importance of technology and innovation for corporate survival and competitive advantage." CTOs’ responsibilities generally include monitoring new technologies, evaluating their fit for commercialization, assessing potential new products, as well as overseeing research new projects to ensure that they meet the innovation needs of the company. Especially because of this last responsibility, CTOs play an important role in shaping overall innovation strategy.
In framing their study, the authors observe that research has shown that male leaders tend to favor a "transactional" leadership style that is "top-down, command and control, and task-oriented." Women, however, tend to favor a "transformational" leadership style that is more democratic and stresses communication, collaboration, and cooperation. In simple terms, the "transformational" leadership style inspires and motivates followers to go beyond self-interest to work for the good of the organization.
Other research has shown that the transformational leadership style has four interrelated components: idealized influence (charismatic role-modeling), inspirational motivation (articulating an appealing and/or evocative vision), intellectual stimulation (promoting creativity and innovation), and individualized consideration (coaching and mentoring). As noted earlier, studies have shown that female executives tend to favor this approach, as well as seeing themselves as less hierarchical, more collaborative, and more democratic. Importantly, the authors note, women are also more likely than men to combine feminine and masculine leadership styles in an “androgynous” style that is predominantly transformational.
Given both the rise in the number of female CTOs and the different approaches they bring to the role, the authors set out to understand their impact on innovation output. In other words, with all else being equal, do female CTOs make companies more innovative? If so, how?
To assess the impact of female CTOs, the authors looked at a composite model of innovation in a set of American companies from 1991 to 2010. Senior leader demographics were drawn from the BoardEx database, which provides top executives' and boards of directors’ personal background information, including gender, age, and education. Patent data, a common foundation of innovation research, came from the United States Patent and Trademark Office. Compustat provided firms' accounting information. In all, the authors compiled 5,408 firm-year observations within the nineteen-year span noted above.
As Figure 2 below illustrates, the number of female CTOs increased since 1991 and peaked at 33 in 2007. Moreover, female CTOs were concentrated in high-tech industries, with chemicals and allied products having the largest female CTO representation, followed by business services, computers, industrial machinery and equipment, and electronic and other electric equipment. Female CTOs’ ages varied from 42 to 75, with most in their mid-50s. Female CTO tenure also varied, with a minimum of two years and a maximum of 13 years.
Figure 2: Distribution of female CTOs by year, industry, age, and tenure.
With the female CTO population defined, the authors looked at innovation-output from the companies in the study. Output was measured by looking at the absolute number of patents granted and various related aspects of patent creation, e.g., team composition and the number of internal and external citations received in subsequent years on all the patents filed by a firm each year.
Any study of this nature requires a comprehensive set of controls to enable accurate comparisons, and this research is no exception. The authors controlled for an extensive set of factors, including company size, financial strength, industry competitiveness, firm capital expenditure levels, and a firm's culture of innovation.
Consistent with their principal hypothesis, the authors found that firms with female CTOs are, by and large, more innovative. These firms not only produce more patents, but their patents are also more often cited by others inside and outside the firm. As the authors note: "Our result indicates that female CTOs are expected to have a rate 1.826 times higher for patent counts compared to male CTOs, holding the other variables constant in the model." With respect to patent citations, the data indicates that "female CTOs are expected to have a rate 1.741 times higher for patent citations compared to male CTOs, holding the other variables constant in the model.”
There are interesting nuances that expand on the paper’s overall findings. For example, as is probably the case with men, female CTOs are most effective when there is a female CEO as well. As the authors note:
We find that the coefficients on Female CTO and Female CEO are both positive and significant, suggesting that both female CTOs and female CEOs have independent and positive effects on innovation. More importantly, we find that the coefficient on the interaction term, Female CTO*Female CEO, is positive and significant, suggesting that the effect of female CTOs on innovation is more pronounced for firms with female CEOs.
Crucially, having a female CEO or CTO are independent drivers of higher innovation that are amplified when both leaders are female, the authors suggest.
As one would expect, female CTOs are most effective in firms with an innovative corporate culture, in firms where the CTO has more power, and in firms with strong competitive positioning. The same goes for CTOs with a technical education, which, I suspect, is the same for male CTOs, given the nature of the role.
Perhaps the most interesting set of findings are those related to how innovation happens at firms with female CTOs. The authors hypothesize that "if female CTOs encourage teamwork and collaboration, we expect that their patent applications are more teamwork-based with more collaborations among researchers." This is indeed what the data indicate. A firm with a female CTO has, on average, 0.747 more inventors than a firm with a male CTO. This result suggests to the authors that more collaboration and greater teamwork occur when innovation activities are led by a female CTO.
Considering the typically high levels of uncertainty throughout the innovation process and the risks associated with such investments, the authors wonder whether it is possible that female CTOs are less likely to choose "risky" innovation efforts. This is an important question given the belief that female leaders are sometimes less risk-averse than men — the so-called female tolerance of failure theory. To assess this dimension, the authors looked at whether patents granted to teams led by female CTOs "exploited" existing innovations (less risky) or "explored" new innovations (more risky). Perhaps surprisingly, the data showed that "that female CTOs are not more risk-averse than male CTOs when they lead high-risk innovation activities." In other words, there is no significant difference in terms of their risk preference between male and female CTOs. Indeed, the authors found that there is a positive relationship between female CTOs and exploratory innovation in manufacturing, which is to be expected since that sector leads all others in exploratory innovation projects. In sum, the data show that rather than being risk-averse, female CTOS are better than male CTOs not only for exploitative but also for explorative innovation efforts.
In a footnote, the authors expand on the finding noted above:
Our finding of a positive relationship between female CTOs and innovation does not support the tolerance-of-failure theory for female executives. One explanation is that theory of female risk aversion is based on the female population in general. Since few women hold top management positions, female managers are unlikely to be representative of the whole female population, but are instead more likely to represent a special group of competitive women who choose to pursue careers in male-dominated professional management jobs. Several studies argue that in a predominantly male environment, women in top management positions think and behave like men, and gender differences disappear. The economics literature even rejects the theory of female risk aversion in general. Therefore, it is not surprising that we find no supportive evidence for the female CTO tolerance-of-failure argument.
Reflecting on their findings, the authors note that other research has shown that transformational management per se is more conducive to innovation in large organizations. Perhaps because female CTOs adopt that approach more often than their male counterparts, they positively impact corporate innovation to a higher degree. Put simply, their affinity for transformational leadership means leads female CTOs to be more innovative than male CTOs. (If this is indeed a major driver of the findings, then it stands to reason that male CTOs who also favor that approach could yield similar results — a topic the researchers do not address)
In closing their paper, the authors note a recent study showing that the average tenure of a company on the S&P 500 narrowed from 33 years in 1964 to 24 years in 2016, and is expected to shrink to 12 years by 2027. At the current turnover rate, about 50% of the companies in the S&P 500 today will be replaced in the next decade. As is widely accepted today, innovation is one of the key factors that determines whether or not a firm stays on that list.
Given the importance of innovation to a corporation's survival and given the increasing number of women in senior leadership positions — including technical ones such as CTO — understating the way in which women leaders impact their firms is critical. This is the first study to look at the impact of female CTOs on innovation, which means that it is too early to reach definitive conclusions. Still, it does suggest that a natural affinity in female leaders for a more collaborative, less ego-centric, management style means that female CTOs may represent a "valuable and rare internal resource that can enhance corporate collaborative culture and provide distinctive insights throughout the innovation process."
If the above conclusion is correct, then firms have a vested interest in ensuring that newly selected female CTOs have the necessary technology-related background, power, and support structure in place to succeed. Unfortunately, as the authors note, such is more often the case in European firms than in U.S. companies, but perhaps that situation will change as more female CTOs make their presence felt. Indeed, given that women control the majority of household spending worldwide, perhaps their growing C-suite impact will lead to new innovations to fit a set of needs that may have gone unserved in the past.
In closing their paper, the authors highlight that other researchers have found that "female executives engage less in value-decreasing acquisitions, use less debt, comply more with tax rules, and promote better financial reporting." As more women reach executive positions, this kind of research may help their employers maximize the value female leaders bring to their companies and society at large. This team's work is a strong and novel addition to that enhanced understanding.
Qiang Wu, Wassim Dbouk, Iftekhar Hasan, Nada Kobeissi, Li Zheng, Does gender affect innovation? Evidence from female chief technology officers, Research Policy, Volume 50, Issue 9, 2021, 104327, ISSN 0048-7333, https://doi.org/10.1016/j.respol.2021.104327.