January 3, 2014

Do women help boards of directors make better deals?

Do men and women handle major business decisions differently? Researchers have been trying to answer that question for years. Recently, a new paper published suggests that there is, in fact, a difference, and that it can manifest itself during crucial moments, such as during negotiations for mergers and acquisitions.

The paper's authors—Maurice Levi And Kai Li from the Sauder School of Business at the University of British Columbia and Feng Zhang from the David Eccles School of Business at the University of Utah—argued that companies that have more women on their boards of directors tend to make fewer bids for mergers and acquisitions, and when they do end up acquiring a new company, they tend to pay less than their male counterparts.

In an interview with the Harvard Business Review, Li argued that there are three reasons why this is the case.

The first is that technology acquisitions are highly important decisions that have the ability to redefine a company's future. As such, businesses need to take their time and really scrutinize a deal before moving forward.

The second reason is that there is a great deal of uncertainty involved with such deals. Often, companies find themselves getting involved in entirely new industries. It is easy to rush into a bad deal without being fully prepared.

Finally, the third reason is that boards of directors tend to be highly involved in the mergers and acquisitions process, even if they are not responsible for day-to-day operations of a company.

What does gender have to do with all this? Li argues that women are better at responding to uncertainty with patience, rather than overconfidence—a trait men are more likely to show.

"Past research, which we cite, has shown that men and women behave differently when faced with uncertainty in terms of how overconfident they are," he said. "Everyone is overconfident—we always think we are better than our true selves—and when men and women are dealing with knowns they tend to be fairly similar in that regard as well. But when they are looking at unknowns, or when feedback is delayed or uncertain instead of specific and immediate, women demonstrate less overconfidence than men."

This is interesting research. While it may not indicate how well any one individual deal will go, it may have implications for technology acquisitions as a whole. Businesses that are considering making such a deal may want to keep this information in mind.