Gender Diversity as a Strategic Advantage in Professional Firms

I'm John Mawdsley. I'm an associate professor at HEC Paris, and I'm gonna tell you today about a paper that was recently published in Strategic Management Journal that I co-authored with Rudolphe Durand and Lionel Paolella, that's entitled A Rivalry Based Theory of Gender Diversity. We examine why and when firms that provide professional services to corporate buyers increase their level of gender diversity in their senior ranks.

Now we assume that these firms seek to improve their market position by attracting buyers away from their closest rivals. And we propose that aligning with the pro gender values or pro gender expectations of these buyers can help firms win their business. And it's this that provides the motivation to strategically adjust their level of gender diversity.

The literature in the strategy describes how firms compete with rivals, typically on dimensions such as price, quality, and the scope of their products and services. And this means that firms need to hold the right collection of resources in order to produce products and services that appeal to buyers.

So in a professional services context, this means that firms need to hold the right mix of knowledgeable employees to gain competitive advantage. We also know that in order to maintain market legitimacy, firms need to respond to pressures and expectations from external stakeholders. Now, some of these pressures and expectations come from buyers and relate to improvements in gender diversity.

Now what we know less of, and especially in a diversity context, is whether and when firms engage in proactive competitive behavior for reasons other than trying to gain a competitive advantage through human capital or responding to legitimacy based pressures.

So this is an especially important question for managers and professional services because their business model relies on being able to attract and satisfy buyers. And what we've seen since the early two thousands is that large corporate buyers who are the prime target for these firms have started to use diversity as one metric onto which they select their professional service providers.

And so this provides the competitive opportunity for firms that can strategically adjust their level of diversity in line with the diversity adjustments in rivals’ buyers. So our first prediction is that a firm will increase its level of gender diversity in its senior ranks following an increase in gender diversity in the executive ranks of rival buyers.

Next, if our theory of a strategic rationale to gender diversity is correct, we should be able to identify conditions that reduce a firm's efforts to improve gender diversity, such as when there's a lower chance of poaching buyers away from rivals, or when firms can offer a credible substitute signal of valuing diverse teams.

And our empirical findings corroborate our rivalry based theory of gender diversity. So we gathered data from the largest corporate law firms in the US over a 12 year period, and we also spoke to some lawyers to help us better understand some of the key mechanisms of rivalry that occur within the industry, and also how they consider diversity within their process for attracting buyers.

First, a one standard deviation increase in the level of gender diversity in the executive ranks of rivals’ buyers is associated with a 10% increase in the number of female partners in the firm, controlling for the total number of partners, which translates to the addition of around four female partners.

Second, we show that a firm will reduce its gender diversity efforts when the rival firms are actually more gender diverse, and when the focal firm itself is more racially diverse. And so together our findings support our proposition: firms will act strategically with gender diversity.

I think there are two main implications from our study. First, for researchers, we show that firms adjust their level of gender diversity for reasons other than, or maybe on top of, reasons that relate to human capital based competitive advantage or legitimacy related pressures. And second, for managers, we propose that managers should look to see how they can use gender diversity as a means to improve their competitive position.