Women in Finance: Hurdles in Climbing the Corporate Ladder

By Prachi Jain & Charu Veluthoor

Women are majorly under-represented in the financial sector. Despite an increase in women graduating from business schools and other related financial degrees programs, the numbers do not look promising in the c-suite level of the workplace. While women are almost equally represented at entry-level positions in this industry, the numbers drop sharply at the executive level. The under-representation of women in the financial sector has been recognized to be a result of multiple underlying factors ranging from structural elements at the workplace like gender biases to societal expectations and familial responsibilities. Through this paper, we attempt to study these underlying factors and consequently suggest policy implications to improve the representation of women in finance. As we discuss in our paper, some of these factors are either unique or more pertinent to the sector. This paper explores two things: first, the individual and familial choices of women in response to factors that are specific to the financial sector that force women to drop out of the industry and secondly, the structural problems women face within the sector that prevent them from reaching c-suite level positions. In the end, we suggest policy measures that can help increase the number of women in this sector and the limitations of the current research in this domain. 

Individual and Family Choices

Most recent literature attributes the high dropout rate of women between entry-level to c-suite level jobs to more individual choices that women make due to the nature of the financial sector. With its long working hours, the sector does not seem to be the choice of industry for folks who prioritize their work-life balance, and is particularly true for mothers. Data from the Pew Research Center (2020) shows that mothers are more likely to quit a job, work fewer hours, or take significant time off of work than fathers in the US. One of the primary reasons for this is that women adjust their careers for their families. This may be because traditional gender roles assigned to women and the gender wage gap make the opportunity costs of the man not working higher. Studies show a strongly gendered labor response to parenthood: women dramatically decrease their employment and work fewer hours if employed, whereas men’s employment and hours worked barely change (Sin, 2018). Among women in senior-level positions, a study from McKinsey & Company (2018) found the inability to balance family and work is cited by half of the senior-level women as a significant reason for not wanting to pursue top executive roles. This finding is perhaps not surprising, given that as women’s responsibilities at work increase with seniority in the financial sector, they are seen to maintain their responsibilities at home. Nearly half of senior-level women say they continue to shoulder most household responsibilities, while just 13 percent of their male peers say the same. 

Literature suggests that these effects are exemplified in careers with non-linear wage structures, such as finance and consulting. Such compensation includes performance-based pay, bonus systems based on defined metrics, and pay based on subjective performance which often exhibit non-linear characteristics. Non-linear wage structures prevalent in the financial services industry are seen as not attractive to mothers, who have a strong preference for flexible work hours. Therefore, mothers are willing to trade lower pay for more flexible work hours, according to Bütikofer et al (2018), and leave their high-paying financial sector jobs for other sectors. In particular, Bütikofer et al suggest that women in more non-linear wage structures—like finance—suffer from a more persistent child wage penalty than women in professions with a more linear wage structure—STEM and medicine.  

Additionally, since financial sector jobs are mostly located in big cities, promotions often require relocation. Turning down an opportunity to avoid relocating one’s family seems to be another hurdle. Women are more likely than men to have geographical limits on their careers (Markham 1987; Steil and Weltman 1991). Studies show that over 34% of women in finance reported geographical restrictions in their jobs in finance (Blair-Loy, 1999).

Structural Challenges

Various structural problems at the workplace contribute to the low number of women at the executive level. Women frequently encounter what is commonly referred to as the glass ceiling. The Glass Ceiling Commission, 2003 defined the glass ceiling as the “artificial barriers that prevent qualified individuals from advancing within their organization and reaching full potential” (Akpinar-Sposito, 2013). These barriers can take many forms—the most important is the problem of gender wage gaps: women are paid significantly less than men for the same work at the same position. Akpinar-Sposito (2013) talks about the lack of mentoring and training programs for women and other underrepresented minorities. Women managers also tend to be evaluated less favourably, receive less support from their peers, are excluded from essential networks, and receive greater scrutiny and criticism even when performing the same leadership roles as men (Sabharwal, 2013). Leadership positions have traditionally been associated with men—it is tough for women to break that mindset. One of the most important reasons why all these barriers are more prevalent in the financial sector is because the sector is perceived to be more masculine in nature (Meeks, 2014). Young women who pursue finance in college report seeing their male peers bond with internship interviewers on masculine topics like fantasy football. In classes, they report being taught about men like Warren Buffett and Benjamin Graham (Meeks, 2014). Many women who infact are successful in the field attribute their success to their comfort in this masculine environment. This thinking can pressure women to assimilate to the masculine culture to advance in the field, and this might create a barrier for women who don’t want to mask their femininity in order to succeed (Meeks, 2014). 

Policy Implications

Some policy measures that the finance industry can take to mitigate the problem are as follows: first, the industry needs to rebrand itself and demonstrate that it is a sector in which women can thrive. Doing so will help improve female representation at the earlier stages of the career funnel and is particularly important in subsectors, such as asset management and wholesale banking, where women start out below parity (Chin et al., 2018). A rebranding of financial services will require its leaders to commit to change, not only by taking action to make their own companies places where women can thrive but also by voicing their commitment to the industry. Second, there is a need to increase access to sponsorship. Sponsorship matters to women at all career stages. It is even more important in this sector because in financial services, senior-level women are more likely than their entry-level peers and senior-level women in other industries to say that sponsorship played an important role in their careers (Chin et al., 2018). Financial services companies can expand offerings for formal sponsorship programs. At present, only 58 percent have such programs (Chin et al., 2018). These should be designed specifically to address the challenges that hinder entry-level women from advancement into the senior ranks. Also, while female role models are crucial, both men and women should serve as sponsors and mentors to ensure that women build the diverse networks they need in their careers. 

Third, companies should try to eliminate bias in reviews and promotions which will boost the lagging promotion rate for entry-level women and help alleviate senior-level women’s sense that their gender has hindered their advancement (Chin et al., 2018). It is therefore especially important for the financial services industry to address the biases—often unconscious—that are holding back female talent. Fourth, the sector needs to give women the flexibility to balance work & family. Although flexibility programs are actually common across the financial sector with, currently, nearly 90 percent of financial-services companies offering extended maternity and/or paternity leave, and 92 percent offering flexible work policies, women—especially senior-level women—fear that partaking in flexibility programs might hinder their advancement (Chin et al., 2018). Companies must encourage leaders of both genders to signal their acceptance and usage of these flexible working policies. Additionally, companies should foster open dialogues about how policies could be enhanced to meet employees’ and their families' needs better. 

Limitations and the Way Ahead

We realize that there are numerous reasons why women do not climb the corporate ladder in the financial sector. The root cause of women dropping out of the industry is most likely a combination of various factors we have discussed. However, there are intersectionalities that we have missed out on—women belonging to minority groups when it comes to race, ethnicity, region, and disability most likely witness a multitude of further challenges in the sector. We see that marginalized groups are further underrepresented in the industry. Though many of the structural and familial factors affect women from these groups alike, there may be other layers of hurdles posed to them. 

To mitigate the underrepresentation of women in senior-level positions in finance, diversity needs to become a universal objective. Eliminating the structural hurdles of climbing the corporate ladder within the financial sector is critical for the sector’s success in the long run, with the customer base growing to include more and more women, everyday. Companies in the sector need to change their composition to attract and retain their clients’ wealth better. Thus, the need to increase women’s participation in the sector is essential from both a societal and an economic standpoint. 

References

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