Gender inequality in entrepreneurial teams

Summary

How does gender inequality in leadership emerge, despite efforts to achieve meritocratic business principles? The authors explore this question in the context of entrepreneurship. Using survey data that examines founding team characteristics of entrepreneurial ventures, they find that women have fewer chances to be in charge when they co-found ventures with their husbands (the study does not address the dynamics of same-sex couples). By contrast, when mixed-sex founding team members are connected through friendship or familial ties, the process of leadership formation is much less influenced by gender, especially when formal business procedures are adopted.

The authors conclude that stereotypical expectations regarding men as breadwinners and women as homemakers get transmitted to entrepreneurial startups when husbands and wives go into business together, and diminish women’s opportunities to assume leadership positions.

Research

Much of the academic literature on entrepreneurship assumes that meritocracy is the primary value shaping business practices. The authors question this assumption by analyzing how gender influences status distinctions among entrepreneurs. Using a dataset that surveyed over 30,000 entrepreneurs in the U.S., they measure how family dynamics and merit-based characteristics influence the likelihood of female entrepreneurs assuming a leadership position within new business ventures.

The authors argue that four main conditions determine whether women assume leadership positions:

(1) Founding members’ competence as measured by prior work experience and education credentials.

(2) The degree to which business practices are formalized via contractual agreements on ownership shares and whether teams completed a business plan.

The authors argue that both of these conditions increase the likelihood that merit will be the guiding principle that determines whether female founding members assume the position of a leader.  Their data analysis revealed that when team members are ranked equally high in terms of observable measures of competency, such as education level and years of experience, the effect of gender in determining leadership races is reduced.  Regarding the formalization of business practices, men are 85 percent more likely than women to be in charge when a formal agreement is not in place. But when a formal ownership agreement has been adopted, men and women have the same chance of leading the startup. And when teams have completed a formal business plan outlining their strategic goals, the bias against women-as-leaders is reduced by 50 percent. In sum, when formal business procedures are adopted, there is a greater chance that women become the boss in new ventures.

When teams have completed a formal business plan outlining their strategic goals, the bias against women-as-leaders is reduced by 50 percent.

Two other conditions may influence whether women assume a leadership position:

(3) Pre-existing social relations between co-founders, measured as whether founding members are spouses, friends, or relatives, and

(4) Family household conditions, measured as whether spousal founding teams hold full-time jobs outside of the startup, and whether they have children.

The authors argue that these conditions make it more likely that gender will be a guiding principle determining whether female founding members assume the position of leader. The study finds that when founding members are spouses, such teams are less likely to instate formal business practices. While 45 percent of non-spousal founding teams use formal agreements to map out venture ownership, only 20 percent of spousal teams do the same. And women more often assume the position of leader in non-spousal founding teams, suggesting that objective criteria are more likely to guide leadership decisions in non-spousal teams than in teams where the founding members are husband and wife.

Looking specifically at teams where the founding members are husband and wife, the authors find that when husbands are the sole wage-earner working outside of the venture, the wives’ odds of assuming a leadership position are 44 percent higher than their husbands’. Having more children also increases women’s odds of becoming the leader, but only when businesses are based inside the home.

These results seem positive, insofar as they increase the odds that women will assume a leadership position. However, they mirror traditional ideas about men’s and women’s roles in the labour force. When the husband works full-time outside of the business venture, presumably that job takes precedence since it is the primary source of family income. It is only when husbands’ full-time employment is prioritized that wives’ leadership chances increase. Similarly, women’s odds of becoming the boss increase when the business is located within the home because it enables them to balance the competing demands of housework and childcare with their entrepreneurial endeavours.

When traditional, family-based gender expectations are transferred into business settings, gender inequality gets reproduced in entrepreneurial ventures.

Implications

• Develop strategies to balance household labour and childcare – Entrepreneurial ventures may provide women with the flexibility they need to balance work and household labour. These kinds of ventures are often called “Plan B” entrepreneurship for women because they are a substitute for jobs outside the home that would be less flexible. But as long as women continue to take on the lion’s share of household labour and childcare, their opportunities for growth entrepreneurship will be curtailed. Universal childcare programs could alleviate the gendered division of household labour and allow women to focus more on growing their businesses, thus facilitating their success.
• Emphasize meritocratic principles – This study shows that meritocratic principles, when explicitly incorporated into entrepreneurial startups, lessen the influence of gender biases. It is hard to regulate small businesses to ensure fairness. However, in Canada, there are many government-mandated loans and grants available for small businesses. Training in meritocratic principles, such as evaluating candidates for leadership positions on the basis of credentials rather than perceived competency (which may be biased) could be enforced as a requisite condition of receiving grants.
• Formalize entrepreneurial arrangments – Formalization can increase the likelihood that women are given equal opportunities to lead. While entrepreneurial ventures often start out with informal arrangements, this study suggests that deliberate efforts to establish documented procedures would support women’s entrepreneurial leadership.