On the influence of women in the upper echelon

Purpose The purpose of this study is to investigate the impact of increased representation of women executives on Boards of Directors (Board) and top management teams (TMT) on firms’ financial and non-financial performance in the USA. Design/methodology/approach This paper used US firms from the Morningstar Advisor workstation to test the hypotheses using ordinary least squares regression, examining linear, quadratic and interactive effects of variables of interest. Findings This analysis reveals that a greater number of women on executive teams (Board and/or TMT) is associated with reduced governance and social-related risks, as reflected in improved ESG scores. However, this paper also observed a corresponding decrease in financial performance. Research limitations/implications Researchers using Upper Echelons Theory or Critical Mass Theory should develop models that explain the effects of diversity on firm outcomes and explore the antecedents and boundary conditions that might strengthen or weaken these effects. Practical implications The results of this study imply the total number, not the relative percentage, of women executives is more important for influencing firm performance. The optimal number of women (and other minorities) might vary depending on the specific outcome of interest. Decisions regarding all forms of diversity, including gender, should be strategically aligned with the outcomes firms seek to impact. For example, firms seeking to improve ESG scores should prioritize increasing the number of women in leadership roles. Social implications While efforts to address the lack of executive diversity are commendable and hold the potential to improve firm decision-making and outcomes, the potential negative implications, such as decreased financial performance, should also be carefully considered and mitigated. Originality/value To the best of the authors’ knowledge, this study is the first to explore the interactive effects of women’s representation on both the Board and TMT simultaneously.