Female Underrepresentation in Finance: What Pao Brings to Focus

Ellen Pao’s recent sex discrimination case against her former employer Kleiner Perkins brings into focus problems facing women who try to break into male dominated fields such as finance. In particular, it shows how cases of discrimination can extend beyond choice or intentional cruelty on the behalf of men, but rather a poisonous dynamic in which choice causes slight discrimination to spiral out of control.

This is not a post to debate the merits of her case. Nor is this a contest over which field — tech or finance or theoretical mathematics—has it worse when it comes to the equal representation of women. Nor are these arguments new. Rather this post is an attempt at contextualizing some personal observations and economic issues to help frame the conversation about the lack of women in these fields.

Choice is a factor

Claudia Goldin, in her presidential address at the 126th meeting of the American Economic Association points out that the industries in which there are the fewest women are those for which time has increasing returns. In other words, these are the industries in which there is value in spending absurd amounts of hours because there are “winner take all” dynamics. Think investing partners, tenured professors, or top manager positions.

It could be argued that these work environments should be more flexible in order to accommodate women who have a stronger preference for a life outside work. But to some extent these are unavoidable parts of the job. And as such, I consider this a somewhat neutral reason for lower female representation in some fields.

But this has important consequences for culture

The problem is that when there is lower female representation due to choice, it can lead to spiraling culture problems. When you start out with a community of men, it starts to make sense to cater to the preferences to men. Commenting about breast size and sexualizing women all of a sudden becomes more acceptable when there are no women around.

This creates a moat into the industry in two ways. First, it makes it hostile for women trying to enter the field. It’s not clear that your co-workers are willing to take you in as one of their own when their conversations seem to reduce women like yourself to sexual objects. Second, it makes the culture hard to change. The existing men in the firm have an interest in keeping women out because to do otherwise would necessitate abandoning parts of the misogynistic culture that creates a friendly bond between the workers.

Note that this culture can take root even if most men started out with no strong desire to exclude women. In an effort to create more camaraderie between the existing men, the issues described above can spiral out of control. There can then be self selection as some of the men who might be more willing to advocate for women no longer come to the firm. New men who enter the firm then perpetuate the existing culutre.

Comments about excluding Pao from a dinner because having a woman there would “kill the buzz” — whether true or not —are examples of this culture spiral dynamic at work. Even if there are fewer women in VC as a result of individual choices balancing work or family, this natural underrepresentation has the potential for a self reinforcing cycle in which it’s more comfortable to exclude women.

So while choice is always a part of any major economic phenomenon, often time choice interacts with other social phenomenon in dangerous ways. The Pao case brings this into focus — reminding us that it is very much possible that slight imbalances in choice can lead to a worsening culture with structural discrimination.