Harvard Business Online

Too Much Testosterone on Wall Street?


Finance has always been dominated by men and driven by a testosterone-enhanced culture. If women had been running our banks, might we have avoided the sub-prime mess and the resulting economic meltdown?

Halla Tomasdottir, a prominent Icelandic financier, answers yes. In a recent BBC interview she shared her outrage at the wild risks male bankers had taken in Iceland, resulting in three banks being nationalized and the country being frozen out of foreign exchange markets. At least two smart women saw it coming—Tomasdottir herself and her partner Kristin Petursdottir, who set up Audur Capital in 2007, recruiting mainly women and exercising risk awareness in their choice of investments. Audur was one of the few Icelandic financial companies to survive the crisis. "Our ground rule was simple, we didn't invest in anything we couldn't understand," says Tomasdottir. In early 2008 she published a report warning Prime Minister Geir Haarde that Iceland's financial model was unsustainable.

He appears to have listened. Two months ago he appointed two women to rebuild the financial system. Elin Sigfusdottir and Birna Einarsdottir now head up the nationalized New Landsbanki and New Glitnir banks - their mandate to move away from the macho culture of irresponsible, aggressive risk-taking that many now blame for Iceland's troubles.

The notion that men are aggressive—and sometimes irresponsible—risk-takers, while women are responsible and risk adverse, has been around for years but is bolstered by new research.

Early last year a team from Cambridge University explored the behavior of 17 male City traders and showed that when traders recorded high levels of testosterone in the morning they made more profit for the rest of the day, but they also indulged in impulsive, sensation-seeking behavior. Dr John Coats, lead author of the Cambridge research study and a former trader himself says "rising levels of testosterone turns risk-taking into a form of addiction."

Another new study "Global Financial Crisis: Are Women the Antidote?" published in October by CERAM, the French Business School, demonstrates that women have a beneficial restraining effect on the excesses of men. This research shows that firms in the CAC 40 (the French equivalent of the Dow Jones) with a high ratio of women in top management have shown better resistance to the financial crisis. Report author Michel Ferrary found that the fewer female managers a company has, the greater the drop in its share price since January 2008. BNP Paribas for example, where 39% of managers are women, has seen its stock fall by 20% since the beginning of 2008. While Credit Agricole, the largest retail banking group in France, where only 16% of managers are female, has seen its share price fall by 50%. Ferrary comes to the conclusion that "the feminization of management seems to be a protection against financial crisis."

The idea that we need more women in top jobs in finance is gaining traction. "The current crisis gives us the opportunity to insert gender into the re-writing of the rules" says Nadereh Chamlou, a senior adviser at the World Bank. "We need more women at the table."

Barack Obama's appointment of Mary Schapiro to head up the SEC would seem to be a step in the right direction, thought it's not at all clear that Wall Street is learning this lesson. The last year has been marked by an exodus of top women - Zoe Cruz, Sallie Krawcheck and Erin Callan, come to mind. Indeed, it's hard to think of any Wall Street women who have risen to prominence in these turbulent times.

Provided by Harvard Business—Where Leaders Get Their Edge


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