A punishing double standard for women on Wall Street

Wall Street firms have been called out for bias against women, with some critics pointing to the financial industry’s male-heavy ranks and gender pay gap as evidence of sexism.

That may only be the half of it. Women in finance are suffering on another front: unequal punishment for workplace missteps, with men let off more lightly for the same misdeeds, according to new research from Stanford University finance professor Amit Seru and two co-authors. Even though men in the financial industry are more than twice as likely to engage in misconduct, women are 20 percent more likely to be fired, they found. 

Financial firms with mostly male leaders are also more likely to inflict severe punishment on women who have erred and are less likely to hire women with blemishes on their record. The findings suggest male executives are more likely to overlook misbehavior on the part of other men, perhaps viewing it as a “boys will be boys” situation. 

While the punishments involve financial misconduct, the double standard also raises questions about whether women may be judged more harshly when it comes to other behaviors, Seru said. 

“If there is less tolerance of the missteps than with men, it’s not surprising you won’t see as many women candidates reach the top,” he said. “It’s easier to measure misconduct and it’s something that can be objectively defined, but I would think there would be many other forms of discrimination and micro-aggression that affects morale.”

The researchers also name names: Wells Fargo (WFC) had the largest discrepancy, disciplining women advisers at a much higher rate than male advisors. The bank was followed by A.G. Edwards & Sons and SunTrust Investment Services. 

The differences in how financial companies treat misconduct by men and women arose out of earlier research from Seru and his two co-authors, the University of Minnesota’s Mark Egan and University of Chicago’s Gregor Matvos. About 7 percent of financial advisers have a history of misconduct, they found in their 2016 research paper. 

That prompted them to delve into why some firms have a tolerance for misconduct and to examine the cultures at big firms, which led them to down the trail of gender bias, Seru said of the recent paper, which is called “When Harry Fired Sally: The Double Standard in Punishing Misconduct.”

“The results were so stark and striking that it was just immediate that we would write something about this,” he said. 

Gender bias research has tended to focus on entry-level decisions, such as whether women with identical resumes to men are less likely to be hired, or given smaller pay packages. How discrimination crops up throughout an employee’s career can be tougher to study, which is why turning to data from the Financial Industry Regulatory Authority helps shed light on the question of how women and men are treated differently throughout their careers. 

“Once someone is hired and the firm has invested resources in you, you would think that any sort of discrimination would attenuate over time or dampen,” Seru said. “That was the surprising element here. We were looking at the firms for a long time; it’s not just inferences from your CV, and yet we are finding there are big differences.”

The data examined registered advisers from 2005 to 2015, with 1.2 million professionals in the dataset. They were able to verify the gender of 82 percent of the advisers, which were the focus of their analysis. Of those, about 9 percent of male advisers and 3 percent of women have at least one misconduct disclosure during their careers. 

But could there be other issues at play that explain why women are more harshly punished than men? For instance, perhaps women advisers engage in behavior that’s more harmful than their male peers. When Seru and his colleagues examined that question, they found no evidence to support it. 

To the contrary, male advisers engaged in conduct that was 20 percent more expensive for their firms to settle, they found. Men are also more likely to be repeat offenders than women, which the researchers noted should support tougher punishments for male advisers -- not women. 

The next thought was whether women advisers are less productive than men, which could provide an incentive for firms to cut their losses when women engage in misconduct. Once again, the data didn’t support it. 

“It turns out they are equally as productive as men,” Seru said. “So you think, OK, we have a case here.” 

Asked if the research could have implications for other industries, Seru said he wouldn’t want to speculate without data.  

“The finance industry has this thing about ‘boys will be boys’ and an aggressive culture, but it’s one where at the end of the day output is very easy to measure,” he said. “The fact that we find [bias] here should tell you something about other sectors where measuring output is fuzzier.”