By Michael Blanding
The Harvard Gazette
The evidence has long shown that women are discriminated against in the workplace. Now it appears that they are even punished more harshly than men when they are in the wrong.
A new research paper reveals that when women at Wells Fargo engaged in misconduct, “they were more likely to be fired—and afterwards, their employment prospects were pretty dismal,” says Mark Egan, an assistant professor of finance at Harvard Business School.
Egan details the misconduct findings in a new working paper, “When Harry Fired Sally: The Double Standard in Punishing Misconduct,” co-written with Gregor Matvos of the University of Texas-Austin and Amit Seru of Stanford Graduate School of Business.
A spate of alleged fraud by Wells Fargo has highlighted a dirty little secret in the financial industry: Misconduct by financial advisors is rampant—and advisors are rarely held to account, which the researchers had investigated in an earlier research study. “We found that advisors engage in misconduct quite frequently,” says Egan. The research found that one in 12 advisors engaged in misconduct, with an average settlement of more than $100,000. “While there is some punishment, a lot of that is undone,” says Egan. “This is a 50-50 chance you are fired, but when you are fired, you typically just move across the street [to another firm].”
“THE RESEARCHERS FOUND THAT WOMEN WHO ENGAGED IN MISCONDUCT WERE 20 PERCENT MORE LIKELY TO BE FIRED FOR THE OFFENSE.”
There was an exception to this rule, however: women. When Egan and his colleagues looked more closely at the data, they saw clearly that when women engaged in misconduct, they were treated very differently.
The harsher punishments represent an overlooked way in which women are treated unfairly, piling onto the well-documented list of unequal treatment for women in the workplace, including lower pay and fewer promotions to upper management.
10 years of data studied
To investigate the issue of financial misconduct, the researchers used a detailed set of data from the Financial Industry Regulatory Authority (FINRA), an independent nonprofit authorized by the United States government to monitor financial firms. The data included all employment information for financial advisors from 2005 to 2015, including when employees were hired, when they left each firm, and whether they left voluntarily or were fired.
“We could look at two advisors—a man and a woman—who work for the same company at the same time and both engage in financial misconduct at the same time, and do an exact comparison,” says Egan. The researchers found that women who engaged in misconduct were 20 percent more likely to be fired for the offense. And after they were fired, they were 30 percent less likely to find new employment in the industry.
“Those differences really jumped out in the data,” Egan says. The researchers explored a possible explanation for the discrepancy, that women on the whole are committing more egregious offenses, in either the frequency or severity of their misconduct, giving their bosses a reason for treating them differently. When they dug deeper, however, they found the exact opposite. Men are more likely to be repeat offenders, and when they do commit misconduct, the settlements paid are 20 percent higher. “It actually looks like women are engaging in less severe types of misconduct,” he says. “If anything, we would expect to see women less likely to be punished.”
Another possible, if more cynical, explanation is that women are less productive than their male counterparts, and so companies have less to lose to their own bottom line by punishing them. The researchers did find some slight evidence for that; however, even controlling for productivity, women were still more severely punished for the same offenses.
That led Egan and his colleagues to an inescapable conclusion: What they were really seeing was pure gender bias, with women discriminated against by a predominantly male industry. “Women are getting less benefit of the doubt and have a shorter leash compared to comparable male advisors,” Egan says.
The punishment women faced was limited by one factor: If there were more women in branch manager or executive roles within a firm, women and men were held to the same standards and punished in comparable ways.
The researchers observed the same phenomenon with racial minorities, with African-American men punished more severely at firms with less diversity in upper levels of management. (Interestingly, Egan observes, the gender gap and minority gap worked independently of each other; just because a firm had more women in positions of power didn’t mean that minority men were punished less, and vice versa.)
The data shows that the extent to which the gender gap exists varies from firm to firm. Wells Fargo topped the researchers’ list, with women at Wells Fargo Advisors more than 25 percent more likely to be fired for the same offense as men.
“WOMEN ARE GETTING LESS BENEFIT OF THE DOUBT AND HAVE A SHORTER LEASH COMPARED TO COMPARABLE MALE ADVISORS.”
Other firms with large gender gaps in punishments include: A. G. Edwards & Sons, SunTrust Investment Services, Allstate Financial Services, and Morgan Stanley.
While having more diversity in upper management could be one way to level the playing field in punishment, it’s not the only way, says Egan. “It’s not so obvious from our findings that managers are necessarily aware of this bias,” he says. “It could be conscious or unconscious. Just seeing this information and being aware of the bias could help both men and women act more fairly.”
After all, he notes, firms have access to the same FINRA data that he and his colleagues do, and could perform their own analysis on whether they are treating women and minorities fairly within their ranks. While no one committing financial misconduct should go unpunished in the long run, firms can at least ensure that they are doling out punishment equally to all.
(Reprinted with permission from the Harvard Gazette and the Working Knowledge of the Harvard Business School.)