Finance professors at three top universities have found a clear example of blatant discrimination against women in the financial industry that must be addressed by the firms in the industry, or by regulators.
The professors found that women in the financial industry are punished far more severely for misconduct than men.
The professors, Mark Egan of the University of Minnesota, Gregor Matvos of the University of Chicago and Amit Seru of Stanford University, found that while women were far less likely to engage in misconduct than male colleagues, when they did so they were 50% more likely to be fired or separated from their jobs, faced longer periods of unemployment and were 30% less likely to find a new job in the industry within a year than misbehaving male colleagues.
Further, if they are not fired, the misconduct weighs more heavily on women's careers than the careers of men who have a record of misbehavior. Female advisers with recent misconduct are 67% less likely to be promoted relative to other female advisers, while men with recent misconduct are only 19% less likely to be promoted than other male advisers.
On the other hand, female advisers who were not fired after an incident of misconduct are far less likely to re-offend than are male advisers. In fact, male advisers are twice as likely to be repeat offenders.
In addition, 67% of female advisers leave the industry after an incident of misconduct compared with 53% of men.
One might wonder if women's misconduct is typically more severe than that of male advisers. Not so, the professors found. In fact, male advisers' misconduct typically costs firms 20% more to settle than misconduct by female advisers.
This injustice is inexcusable and must not, cannot continue. It is a black eye for the industry. Top officials at financial firms must examine their own records of disciplinary actions against employees to see how they stack up relative to the professors' findings.
The picture is not pretty, even for some of the largest firms. For example, Wells Fargo Advisers was found to be 25% more likely to dismiss a female adviser than a male adviser following misconduct. A. G. Edwards & Sons and Sun Trust Investment Advisers were not far behind.
These firms and others must take actions to correct the apparent discrimination against female employees.
If the industry does not acknowledge the research and immediately take steps to correct the unequal treatment, then Finra, the SEC or even the Equal Employment Opportunity Commission should intervene and pressure them to do so.
There are simple steps firms in the industry can take to correct the problem. First, hire or promote more women to the executive/ownership level. The professors found that female advisers at firms with no female representation at that level are 42% more likely to be let go after an incident of misconduct than male advisers at the same firm in similar circumstances.
Firms with equal representation of male and female executives/owners discipline male and female advisers at similar rates.
Second, hire more female advisers. The professors found that female advisers are only one-third as likely to engage in misconduct as male advisers, and as noted, settlements were less expensive when they did. Given that the professors also found minimal differences in productivity between male and female advisers, hiring more female advisers makes business sense.
The professors raise an important question: "Why don't some firms specialize in hiring more women who have been punished by the incumbent firms?"
They suggested two explanations: First, male executives' bias toward hiring men might outweigh their incentive to maximize profits. Second, the market is not aware of the potential cost of the discrimination, which is likely since the professors are the first to put forth this kind of information.
They note that owners and executives of financial advisory firms should ensure equal representation of the two genders, "if not for equity considerations then at least for a profit motive."
If top executives of financial firms truly are profit-maximizers they will fix the problem and let the world know they have done so.