Why Women Often Don’t Lead The Companies They’ve Founded

Gender still matters in leadership in 2014. Women work twice as hard to secure VC funding, and often end up not taking on a male co-owner.

Why Women Often Don’t Lead The Companies They’ve Founded
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Merit is supposed to cut across everything, determining who reaps the most rewards and who leads in business. Gender shouldn’t matter. But of course it does.

“Gender is under the surface, or not so much under the surface,” says Howard Aldrich, head of the sociology department at the University of North Carolina at Chapel Hill. “When taken into account, it can distort the effects of merit. Instead of having the discussion of who will take the lead, these things tend to just bubble up.”

There’s been a lot of discussion lately about the paucity of women who snag venture capital to start their own companies, the few women in positions of authority in the cliquey tech sector, as well as the low percentage of women holding corporate board seats–only 16.9% in the United States–according to Catalyst, a research group studying opportunities for women in business.

Broadly, 30% of all U.S. businesses are women-owned and 17% are 50/50 co-owned with men, which means 47% of all businesses in the United States have a woman co-owner, according to the latest U.S. Census data on business ownership.

Women also are starting businesses at a faster rate than men–one in 10 women and seven women for every 10 men were starting a business in 2013–says Susan Duffy, executive director of Babson College’s Center for Women’s Entrepreneurial Leadership.

What’s more, from 1997 to 2013 the number of women-owned businesses rose 1.5 times the national average for all businesses, reports American Express OPEN in 2013. The same period saw a remarkable increase in businesses owned by women of color, who now account for one in three women-owned firms in the United States.

Internationally, female entrepreneurs are fewer than their male counterparts in nearly every economy, and they appear to show reluctance to scale their businesses, or to enter new and less-tested markets. From 69 economies studied, the level of innovation was highest among U.S. women entrepreneurs and slightly higher than that for men, according to the 2012 Women’s Report of the authoritative annual Global Entrepreneurship Monitor, which publishes survey results by national research teams around the world.

Gender Roles In Husband-Wife Business Teams

How does gender inequality like this get started in the business cycle? It hasn’t been studied much. But a recent survey in the American Sociological Review that takes a stab at the origins is “probably the best that we know of right now [and one of the first] . . . to see how the division of labor falls out at nascent businesses,” says Candida Brush, chair of the entrepreneurship division at Babson College.

The study looked at how gender affects leadership roles in America’s new businesses, in service areas like construction and bakeries. In the milieu of new companies started by teams of men and women, you see the “unvarnished effect” of gender, says study coauthor Aldrich. Nascent companies are not yet drenched in the institutional pressures for gender equality arising from Title IX and other federal employment and contracting requirements to consider gender, which are old hat to larger, more sophisticated companies.

Aldrich and coauthor Tiantian Yang, a UNC sociology graduate student, using a nationally representative sample of 880 entrepreneurs in 362 mixed-sex startup teams–70% of which are husband-wife teams–discovered men are 85% more likely than their women cofounders to lead nascent companies. The effect is most pronounced among men and women cofounders who are married to each other. “The magnitude of gender inequality in non-spousal mixed-sex teams is about 71% less than in spousal teams,” Aldrich says. “. . . Discussion is suppressed in spousal teams and less so in non-spousal teams.”

“. . . Only 11% of cofounders are people who know each other less than five years, so cofounders are likely to know each other,” Aldrich continues. “There is also a homopoly in startups, meaning founders tend to be like each other in age, education, and race–one reason it’s very rare to find mixed-race cofounders. These things breed familiarity and trust, and it means cofounders [tend] not to be reflective.”

So with startups, you see home gender roles naturally bleeding into nascent companies’ division of responsibility . . . and power. “When husband and wife work together, they carry with them the cultural expectations for the male breadwinner and the female homemaker roles into the business setting,” says Yang. “And the more children there are at home, the more it amplifies the expectation that the woman will also take on the role of leader of the household.”

A Level Playing Field

A simple document can level the playing field, the study authors discovered. Founding women and men have roughly the same chance to lead if they sign a formal ownership agreement–a customizable legal accord small- and medium-size companies draw up setting out–among other basic considerations, “the rights, benefits, and returns” of the cofounders and each party’s “contributions, duties, and responsibilities,” says seed-stage attorney Tolis Dimopoulos.

Even more research along the lines of the UNC study is needed to right the balance with previous research, which has focused on gender equality in older and larger established organizations.

For instance, being in charge “just doesn’t matter to the woman [cofounder], says Duffy. “My anecdotal experience is this: She doesn’t care whose name is on the letterhead; she’s more interested in the bottom line, whether the company is making money . . . . Also, the woman is more risk-rational [not risk averse]. Men are overconfident. Women think it through to a fault. We’ve actually created a risk ecosystem that privileges overconfidence. The mantra is: Go when you’re 60% ready. So when women reach 60%, they go,” Duffy says.

The need to land funding can convince women to step back and allow men to take the top title, according to Patricia Greene, national academic director of Goldman Sachs 10,000 Small Businesses, an investment program to help entrepreneurs create jobs and economic opportunity.

“Anecdotally, we see [men take the lead] most when [the founders are] seeking external resources [meaning financing],” Greene says. “If the founders think there’s some bias in the resource provider, they form a strategic front, in which case the man takes the visible leadership as CEO or president. Investors look for people with experience in strategic areas to grow businesses . . . . Men often come from strategic areas; women come from less-strategic areas. So there’s some experiential imprinting. They want to play to their strengths.”

Women’s Struggle To Find Funding

They’re right to be concerned–women stumble more than men when it comes to locking up funding. “More women are in the early-stage pipeline [for funding], but they get shut out [later] in venture capital,” Greene says. “We’re saying it’s the culture in the [venture capital] companies. Women have been doing what they’re supposed to–they have the right education, they have the experience, they want to grow their companies. But they’re not in the right networks to get the venture capital.”

This was the finding of the Diana Project, coauthored by Brush and Greene, which researched why fewer than 5% of all ventures receiving equity capital had women on their executive teams. Women had the chops, but they weren’t in old boys’ clubs–like the Stanford-MIT clique in the tech sector–that funnels entrepreneurs toward a venture capital win. Companies with a woman CEO only received 3%, or $1.5 billion, of the total $50.8 billion in venture capital invested during the 2011–2013 period, according to the Diana research. This is astounding considering that women entrepreneurs are majority owners of an estimated 10 million businesses, or as the U.S. Small Business Administration reports, 36 % of all businesses in the United States.

Brush points to the example of Jules Pieri, named by Fortune as one of the Most Powerful Women Entrepreneurs in 2013. Pieri is now founder and CEO of The Grommet, her third startup, which “launches undiscovered consumer products.” Even though she was the first designer to graduate from Harvard Business School and had years of experience in top executive positions at major consumer corporations, including vice president of strategic planning at Stride Rite, she “spent five years looking for funding. So many nos and so much effort. She had to work twice as hard. That’s what happens,” says Brush.

It’s what happens to a lot of women. They start a business and start a struggle. With or without a man as a cofounder, the road still skews male much too often.

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