Niels Opstrup

University of Southern Denmark, Denmark

Anders R. Villadsen
Aarhus University, Denmark

The Right Mix? Gender Diversity in Top Management

Teams and Financial Performance

Abstract: Recent research has illustrated that demographic diversity influences the outcomes of public sector organiza- Niels Opstrup is assistant professor in
the Department of Political Science and
tions. Most studies have focused on workforce diversity; by comparison, little is known about how managerial diversity Public Management at the University of
affects organizational outcomes. This article focuses on gender diversity in the top management teams of public organi- Southern Denmark. His research focuses
zations and its relationship to financial performance. Theory suggests that management diversity can be a positive asset on the management and organization of
public organizations and, specifically, on the
for organizations, allowing for the use of more diverse knowledge and human skill sets. Results of this study, however, governance of universities and management
suggest that organizations may only be able to leverage these advantages if they have a supporting management of academics. He has also investigated
structure. In a longitudinal study of top management teams in Danish municipalities, the authors find that gender developments in the backgrounds and
career paths of top civil servants.
diversity in top management teams is associated with higher financial performance, but only in municipalities with a E-mail: nop@sam.sdu.dk
management structure that supports cross-functional team work. These results are interpreted in light of existing theory,
Anders R. Villadsen is associ-
and implications are suggested. ate professor at Aarhus University,
Denmark. His research interests include
Practitioner Points public management and diversity in
public organizations. He has published
• Little is known about how the composition of the top management team in public organizations matters for in journals such as Journal of Public
organizational outcomes. Administrative Research and Theory,
• Greater gender diversity has the potential to lead to superior organizational outcomes but does not automati- Public Administrative Review, and
International Public Management
cally do so. Journal.
• To reap the benefits of diverse top management teams, the organizational structure must facilitate behavioral E-mail: avilladsen@badm.au.dk
integration between members of the top management team.
• Gender diversity in the top management team is related to better financial outcomes when organizational
structures promote integration and discretion of the top management team.
• Gender diversity in top management positions has no effect in traditional hierarchical organizations.

R
ecent research has explored how characteris-
tics such as tenure (Juenke 2005), race (Pitts
2005), experience (Villadsen 2012), and
gender (Meier, O’Toole Jr, and Goerdel 2006) influ-
ence the actions of public managers. This research,
however, generally fails to allow for the fact that
management is rarely an individual endeavor; while a
single person may top the hierarchy and serve as the
public face of an organization, actual top management
is often better described as a team effort (Finkelstein
and Hambrick 1990). In this article, we move the
focus from the individual manager to the top manage-
ment team and examine how its composition affects
organizational outcomes.
contracting (Hefetz and Warner 2004, 2012),
and performance-information use (Moynihan and
Ingraham 2004; Moynihan and Pandey 2010). This
substantial line of research has provided valuable
insights about how managers can affect the outcomes
of public organizations. Much less research has been
devoted to the composition of management teams and
the dynamics among individuals occupying manage-
rial roles in organizations. This is a critical gap in our
understanding of public management. Top manage-
ment is composed of individuals who apply their
knowledge, perspectives, and worldviews to contribute
to decision making as well as the overall direction of
organizations (Hambrick, Cho, and Chen 1996).

A considerable amount of research has investigated
how various management practices affect public
organizations. These practices include leadership
(Fernandez 2005; Van Wart 2013), managerial net-
working (Meier and O’Toole 2003), organizational
strategies (Andrews, Boyne, and Walker 2006),
In this article, we explore how gender diversity in
top management teams (TMTs) affects financial
performance in public organizations. Research
Public Administration Review,
focusing on private firms indicates that managerial
Vol. 75, Iss. 2, pp. 291–301. © 2014 by
gender diversity is related to positive performance The American Society for Public Administration.
outcomes (Auh and Menguc 2006; Carter, Simkins, DOI: 10.1111/puar.12310.

The Right Mix? Gender Diversity in Top Management Teams and Financial Performance 291
and Simpson 2003; Dwyer, Richard, and Chadwick 2003; Erhardt, steering of public spending (Serritzlew 2005; Wildavsky and
Werbel, and Shrader 2003). However, little research has yet explored Caiden 2004).
the outcomes of TMT gender composition in public sector organi-
zations (Pitts and Wise 2010), and to our knowledge, no studies More specifically, we study the relationship between TMT gender
have focused on how diversity may affect financial performance. diversity and financial performance in a longitudinal analysis of
We respond to an increasing interest in diversity in public organiza- 91 Danish municipalities. Our results indicate the importance of
tions (Park 2013; Pitts 2005; Pitts and Wise 2010) and draw on organizational structure for accruing the benefits of TMT diversity.
recent theories about team diversity (for reviews, see Jackson, Joshi, Only in municipalities where the management team is organized
and Erhardt 2003; Van Knippenberg and Schippers 2007) in order according to an executive board model do higher levels of gender
to explore how the gender composition of TMTs affects financial diversity correlate with better financial results (measured in terms of
outcomes in public organizations. operational results and outperforming the budget in the course of
the year). No such effect is found for municipalities using a tradi-
In this article, we argue that TMT gender diversity is a positive tional specialized organization of management.
asset for public sector organizations, for three reasons. First, draw-
ing on the theory of representative bureaucracy, gender diversity With this study, we make three important contributions. First, we
is likely to generate a better understanding of the organization’s expand the very small number of studies that call attention to the
environment because a collective of diverse team members can differences between male and female public managers. While the
relate to many different aspects of increasingly heterogeneous Weberian public manager is a genderless bureaucrat, in the real
organizational surroundings (Keiser et al. 2002; Park 2013). world, men and women bring different backgrounds, experiences,
Second, diversity may inspire more creative and innovative output and expectations to the executive floors of ministries, agencies, and
because it enables organizations to draw on a wider range of city halls. This study points clearly to the importance of increasing
social and human capital as well as different cognitive templates our understanding of how gender diversity affects top management
(Østergaard, Timmermans, and Kristinsson 2011). Finally, diversity decision making and outcomes. Second, we address a call for more
may provide more effective problem solving because diverse teams research exploring the importance of diversity for organizational
evaluate more alternatives and explore more potential consequences outcome (Pitts and Wise 2010). Most diversity research in public
(Carter, Simkins, and Simpson 2003). Further, we draw on theories organizations has studied workforce diversity using the theory of
of group decision-making processes to suggest that male-dominated representative bureaucracy (Kingsley 1944; Park 2013; Roch and
TMTs may be excessively risk seeking compared with those Pitts 2012). We add to this knowledge by showing that top manage-
with a more even gender balance. Based on this, we predict that ment diversity can have a predictable, significant impact on financial
financial performance is likely to be better in organizations with a performance. Third, we shed light on one of the mechanisms that
gender-integrated TMT. connects gender diversity to positive outcomes. We suggest that
in order to accrue the benefits of diversity,
We propose that the benefits of diversity are structures must be put in place to facilitate
Gender diversity in the top
contingent on organizational factors. Gender behavioral integration of the team. In this
diversity in the top management team is management team is likely to be way, our study helps clarify one of the reasons
likely to be related to superior perform- related to superior performance why previous research on diversity yielded
ance specifically when management struc- specifically when management mixed results.
tures facilitate behavioral integration and structures facilitate behavioral
cross-gender TMT work. We suggest that integration and cross-gender Next, we lay out our arguments for a positive
the mixed results of previous research were relationship between TMT gender diversity
TMT work.
caused by disregarding the role of organiza- and financial performance and set forth our
tional structure as an important mediating hypotheses. Following this, we describe the
factor. This is consistent with research pointing to the impor- research setting and methods used. After reporting the results of our
tance of the structural context for achieving active representation analyses, we discuss our results with regard to existing research and
(Keiser et al. 2002). managerial relevance.

Previous studies of the outcomes of diversity and representation
in public organizations have predominantly taken education as
their point of departure, relying on various measures of student
performance (Pitts and Wise 2010). In this article, we focus on
the financial performance of multipurpose public organizations.
Of course, we recognize that “making money” is not the prime
objective of public sector organizations. However, sound financial
management is a fundamental prerequisite for effective service
delivery, particularly in the post–New Public Management period,
when many organizations, agencies, and units have gained greater
financial autonomy. The ability to control finances effectively is
an important factor underlying the work public organizations
carry out. Deficits and budget overruns may impede the effective
292 Public Administration Review • March | April 2015
Gender Diversity in Top Management Teams
A top management team is the “dominant coalition” responsible
for setting an organization’s direction (Cyert and March 1963).
The TMT is charged with identifying opportunities and problems,
gathering and interpreting information, and making decisions that
propel the organization forward (Mintzberg 1979). In this process,
TMT members must draw on individual as well as collective human
and social capital. Each individual brings a different background
and perspectives to the table. However, decisions are also shaped in
cooperation. While there is a relatively limited number of stud-
ies on management team composition and functioning in the
public sector, a substantial line of research has investigated TMT
and board composition in the private sector and its relationship to
organizational performance (Finkelstein and Hambrick 1990; Miller
and Triana 2009; Zahra and Pearce 1989). Pitts argues that diversity
is a strength when “[t]he ‘whole’ of the group’s effort will be greater
than the sum of the parts” (2005, 618).
Given that management may be stereotypically thought of as a male
task, an important challenge for research has been to investigate
how the gender composition of top management matters for the
outcomes of organizations. In a comprehensive review of private
sector research on diversity, Jackson, Joshi, and Erhardt (2003)
find gender to be the most widely studied dimension of diversity,
ahead of age and functional background. Research has long been
interested in gender segregation in public administration as well
(Guy and Newman 2004; Stivers 1995). However, in a systematic
review of studies of workforce diversity in 12 core public adminis-
tration journals, Pitts and Wise (2010) find that only a few studies
have explored the outcomes of diversity. Of these, even fewer have
focused on gender. This is a critical gap in our understanding of
public management.
The central premise underlying the hypothesis that gender diver-
sity matters to top management teams is that male and female
managers differ, not only in general but specifically in terms of
the way they perform in their (management) jobs. Research has
provided numerous studies of how leadership styles differ between
men and women. Generally, studies find that women engage in
leadership behavior that is more participatory, collaborative, and
democratic than men’s (Dezsö and Ross 2012; Eagly and Carli
2003). While there are, to our knowledge, no studies focusing on
diversity in the top management teams of public sector organi-
zations, a small amount of research has illuminated the conse-
quences of gender differences among public managers. In a study
of Texas school districts, Meier, O’Toole, and Goerdel (2006)
find gender differences in the performance effects of managerial
networking. Johansen’s (2007) study of the same empirical setting
suggests that prospector strategies may be especially effective when
carried out by women managers. In a study of state agency heads
in the United States, Jacobsen, Palus, and Bowling (2010) find
that women managers devote less time to internal management
and engage in less external networking behavior than their male
counterparts.
Top Management Gender Diversity and Financial
Performance
Building on the assumption that male and female managers exhibit
distinct characteristics, there are further reasons to believe that gen-
der diversity is related to organizational outcomes. Next we develop
the relationship between TMT gender diversity and financial
outcomes by drawing on the general diversity literature as well as
dedicated financial literature.
Krishnan and Park (2005), drawing on social
identity theory, highlight three arguments
Women are more likely than
why TMTs may benefit from gender integra-
tion after a history of favoring men. First, men to be perceived as leaders
women are more likely than men to be per- in environments that involve
ceived as leaders in environments that involve a significant degree of social
a significant degree of social interaction. interaction.
Public sector organizations exist in highly
The Right Mix? Gender Diversity in Top Management Teams and Financial Performance 293
diverse and complex environments, which may make female leaders
an asset (Kent and Moss 1994). Second, women in top management
are likely to be highly skilled, as they typically have to overcome
significant challenges to break the glass ceiling and get promoted to
higher ranks. (This point is particularly salient in the context of the
present study, as only around 20 percent of municipality top man-
agers in Denmark are women.) This means that not only are women
who attain TMT positions likely to be skilled and knowledgeable,
but also they are adept at working the politics of the organiza-
tion. Third, compared with men, women’s cognitive style tends to
emphasize harmony (Krishnan and Park 2005). This gender differ-
ence may lead to superior team dynamics when men and women
are brought together in continuous interaction, where the distinct
strengths of each gender can be leveraged. Further, it can be argued
that the degree of gender diversity in top management constitutes a
signal to lower hierarchical levels. Female middle managers become
more motivated if they see women in the TMT and, consequently,
see a viable promotion path (Dezsö and Ross 2012), and female
employees in general are likely to feel more accepted and to feel that
different gender roles are accepted in the organization (Guy and
Newman 2004).
The foregoing arguments suggest that there may be positive effects
of gender-diverse TMTs. This has generally been supported in
studies of private sector firms (for a review, see Jackson, Joshi, and
Erhardt 2003). Krishnan and Park (2005) find that TMT gender
diversity has a positive effect on organizational performance in a
study of Fortune 1000 companies. In a study of 127 large U.S.
companies, Erhardt, Werbel, and Shrader (2003) report a posi-
tive association between board diversity and financial performance
indicators. As mentioned, relatively few studies have explored
outcomes of diversity in public organizations (Pitts and Wise 2010).
Still, representative bureaucracy theory would predict that a repre-
sentative TMT will be more attuned to the demands and needs of
citizens and, consequently, likely to make better financial decisions
(Park 2013).
In this article, we focus specifically on how TMT gender diversity is
related to the financial performance of public sector organizations.
Assessing the performance of public sector organizations is notori-
ously difficult because such organizations often serve multiple objec-
tives and must balance the interests of multiple stakeholders. Unlike
research on private sector performance, where financial indicators
are the sine qua non, research in public management has tended to
focus on service-related performance measures such as student test
scores (Andersen and Serritzlew 2007; Meier and O’Toole 2001),
composite measures (Andrews, Boyne, and Walker 2006), or self-
reported assessments. Diversity research is no exception: as already
mentioned, relatively little diversity research is outcome focused, and
the few studies that do exist have largely focused on the educational
sector and student outcomes (e.g., Johansen 2007; Pitts 2005).
To further understand how TMT dynam-
ics may affect financial outcomes, it is worth
considering how group composition may
affect risky behavior in groups. Research in
economic psychology indicates differences in
men’s and women’s financial decision mak-
ing. Using experimental methods, Powell
and Ansic (1997) find that women are less risk seeking than men TMTs must have a structure allowing integration, which, in turn,
and that they adopt different strategies in their financial decision can facilitate interaction and cultivate mutual exchange of knowl-
making. A similar point is made by Francis et al. (2009) in a study edge and opinions. We expect that organizations will be better
of chief financial officers (CFOs) showing that female CFOs are able to reap the benefits of gender diversity when they adopt an
more conservative than male CFOs. These individual-level gender organizing approach that allows for higher degrees of integration.
differences aggregate through group composition to create system- Conversely, if a TMT’s responsibilities are disintegrated and distrib-
atic differences in organizational-level outcomes. Group behaviors uted across sectorial areas, diversity will be much less important,
conform to the assumptions, values, and norms that are shared by if at all. The benefit of bringing together members from different
the majority of the group’s members (Cartwright and Zander 1960). groups (in this case, different genders) will simply not be realized
This means that if the prevailing view held by the majority favors because managers will maintain a strong focus on their distinct area
a more risky decision, the minority group members are likely to of responsibility with little benefit accrued from cooperation.
conform. Stoner (1968), for instance, finds that groups give more
weight to risk-related attitudes shared by more members. If men and Besides integration, team discretion may also affect the outcomes
women tend to hold different attitudes toward risk, this research of diversity. If the management structure is hierarchical, with a
suggests that TMT gender segregation may lead to financial deci- dominating top executive, gender integration is likely to matter less
sions that are either too risky or too safe depending on the majority than if the management structure emphasizes teamwork and shared
gender of the group. A gender-balanced team responsibilities. In the latter situation, in
is less susceptible to the weaknesses of such A gender-balanced team is less which management discretion resides at the
groupthink. In public organizations looking susceptible to the weaknesses of TMT level rather than the individual level,
to find the right balance between being finan- group dynamics matter more for decision
such groupthink.
cially progressive and conservative, a balance quality and outcomes. Management discre-
of male and female TMT members is likely to tion has been shown to positively affect
be positive. organizational efficiency in local governments (Garrone, Grilli, and
Rousseau 2013).
In total, we base our hypothesis on two lines of argument: first, on
general research claiming that gender diversity is positively related to This reasoning can also been interpreted in light of representative
organizational outcomes, and second, on specific research pointing bureaucracy research. Studies have distinguished between passive
to gender differences in financial decision making. and active forms of representation (Park 2013; Wilkins and Keiser
2006). Passive representation may increase the legitimacy of public
Hypothesis 1: Higher TMT gender diversity is positively agencies (Riccucci, Van Ryzin, and Lavena 2014), but active repre-
related to financial performance. sentation may create more substantial outcomes. Such more active
representation, however, may depend on structural conditions of
The Moderating Role of Management Structure the organization. As argued by Keiser and colleagues, “Within the
The arguments outlined earlier imply that for a group to obtain the organization, a [...] necessary condition for representative bureauc-
positive outcomes of diversity, its members must be able to interact racy is that the bureaucrats in question have discretion to influence
productively and constructively and feed off each other’s strengths. outcomes” (2002, 558). With regard to overall financial outcomes,
Previous research has pointed out how structures can facilitate posi- discretion is greater when management structures promote real team
tive outcomes from representation (Meier and Bohte 2001). The work and shared responsibilities.
expectation expressed in hypothesis 1 may therefore be contingent
on the organization of the top management team. To release posi- We predict that the organization of management may significantly
tive TMT dynamics, the TMT must work in a way that facilitates affect the organizational outcomes of TMT gender diversity. When
such interaction. Specifically, we propose that team integration and management is structured around team integration and team discre-
team discretion positively moderate the relationship between gender tion, the benefit is likely to be higher.
diversity and financial performance.
Hypothesis 2: The positive relationship between TMT
Upper-echelon theory has argued that the outcome of a TMT’s gender diversity and financial performance is moderated by
work depends on its organization and internal dynamics. Hambrick management structure, such that the relationship is stronger
points out that TMTs “often consist of semiautonomous ‘barons,’ when TMT integration and discretion are higher.
each engaging in bilateral relations with the CEO but having little
to do with each other and hardly constituting a team” (2007, 336). Research Setting
In light of this, he argues that TMTs with more behavioral integra- Danish municipalities (local governments) provide an excellent
tion are likely to perform better. Behavioral integration describes the setting for studying the impact of gender diversity in top manage-
extent of a team’s collaboration, knowledge exchange, and emphasis ment teams. The 98 municipalities are highly comparable, semi-
on joint decision making (Hambrick 1994). TMTs that are more autonomous units having the same tasks and subject to the same
behaviorally integrated have been shown to be able to embrace regulations (Christensen 1998; Greve 2006). Local government is
ambidexterity to a larger degree and also exhibit higher performance responsible for the larger part of public service, including primary
(Lubatkin et al. 2006). Another study finds higher TMT behavioral schooling, child care, elder care, local infrastructure, and social
integration to be positively related to decision quality (Carmeli and security benefits. The municipalities levy their own taxes and have
Schaubroeck 2006). For diversity to affect organizational outcomes, considerable autonomy in service provision.1 Government rests with
294 Public Administration Review • March | April 2015
the elected municipal council, and executive power is shared among
a compulsory financial committee, various standing committees,
and the mayor. The mayor chairs the council and the financial com-
mittee meetings and is formally the “daily leader of the municipal
administration” (Mouritzen and Svara 2002). Most mayors come
from one of the two biggest political parties, the Social Democrats
or the Liberals (Berg and Kjær 2005). The other members of the
council are “part-time politicians” who usually also hold a day job.
While municipal councilors are formally in charge of providing
direction and overall decision making, actual operations are left to
the administrative organization. Top management consists of career
bureaucrats who are promoted from the ranks of civil servants. In
practice, municipal administrative top management teams consist
of a chief executive officer (CEO or kommunaldirektøren) and a
number of managing directors. The formal hierarchical relationship
within the TMT is somewhat ambiguous because of the sharing
of executive power among the financial committee, the standing
committees, and the mayor (Ejersbo, Hansen, and Mouritzen 1998,
109). However, the CEO is usually regarded as the person in charge
of the administrative part of the municipal organization (Bækgaard
2011, 1066).
Two basic yet distinct forms of organization of the top management
are used in Danish municipalities (Bækgaard 2011). Traditionally,
most Danish municipalities have organized their administration
according to a sector-based model, in which the municipality’s
tasks are divided among a number of administrative departments,
each responsible for a defined service area (which typically mirrors
the responsibilities of a specific standing committee). Each depart-
ment has a department head. However, since the beginning of the
1990s, many municipalities have reorganized (Villadsen 2012).
Emphasizing the need for coordination at the municipal apex and
drawing inspiration from private firms, some municipalities have
organized the top management as executive boards with cross-
departmental responsibilities. The main differences between the
two types of models lie in the roles and the focus of the managing
directors. In the sector-based model, the department heads’ primary
responsibility is the running of their department. This type of
organizing is based on traditional bureaucratic thinking, in which
each top manager is responsible and accountable for a particular line
of work. The top managers of each department together form a top
management group, but responsibilities are relatively clearly divided.
Consequently, little TMT integration is needed, and overall mana-
gerial discretion is likely to rest with the top executive.
In the executive board model, the managing directors attend to
intraorganizational coordination, strategic decision making, and the
economic steering of the municipality. While TMTs organized in this
way have a CEO who is ultimately in charge, they are a collective in
which decision making is a shared task across the various functional
areas of the organization. This type of organizing is more time-con-
suming, but it allows the team to benefit from members’ collective
human and social capital and provides a higher degree of functional
integration among different lines of work. TMTs organized this way
will be more integrated and have more team-based discretion.
Some municipalities apply a mixed model, with an executive and
one or more of the managing directors also being department heads.
The Right Mix? Gender Diversity in Top Management Teams and Financial Performance 295
However, the full effect of an executive board is presumably only
apparent in the pure version of the executive board model, in which
the managing directors are formally totally independent of sector
interests (Bækgaard 2011, 1068). We explore these differences in the
organization of management to assess whether the effect of manage-
ment diversity is contingent on the structure of management.
Methods
Data and Analysis
To investigate the impact of gender diversity on financial performance
in the TMTs of Danish municipalities, we analyze yearly data for the
period 2008 to 2012. The starting point for the analysis is given by
a major structural reform (Strukturreformen) implemented in 2007,
which reduced the number of municipalities from 271 to 98 and
changed their responsibilities and financing (see Vrangbæk 2010).2
The data are compiled from register data and official statistics.
The composition of municipality top management teams and the
municipalities’ administrative structure are coded based on the
official local government handbook (Mostrup Kommunal Håndbog),
which is issued annually and contains, among other information,
the names of the local government CEOs and the other manag-
ing directors in each of the 98 municipalities. According to this
handbook, the size of the municipality TMTs varied between 1 and
12 members in the analyzed period. In order to make a measure of
diversity meaningful, we only include observations with more than
two registered municipal managers, eliminating seven municipali-
ties. Therefore, only 91 municipalities feature in the analysis. Data
on financial performance is obtained from statements made by the
Danish Evaluation Institute for Local Government.3 Furthermore, a
number of control variables are integrated from “the yearly munici-
pal key indicators” (De Kommunale Nøgletal) published by the
Ministry of Economy and the Interior.4
In our analysis, we apply generalized least squares (GLS) regres-
sion in order to deal with the potential problems of heteroscedas-
ticity attributable to the longitudinal data design (Frees 2004).
Furthermore, because each municipality appears multiple times
in the analysis, observations may not be independent. Therefore,
we cluster the analysis on the observations (municipalities) and
calculate robust standard errors. When analyzing panel data, there
is always a choice between random- and fixed-effects specifications.
Various reasons justify using a random-effects specification for
this study. First, there is relatively little variation in our independ-
ent variable across the years, as changes only happen when there
is a replacement in the TMT, rendering within-observation vari-
ation modest and fixed effects unfeasible. Further, we conducted
a Hausman test, which clearly rejected fixed effects as superior to
random effects (p < .43). Therefore, we use random-effects estima-
tions in all models.
To ensure that multicollinearity is not problematic, we calculated
variance inflation factors (VIFs), which did not reach any levels of
concern. The mean VIF score is 1.67, and the highest value is 2.45.
To assess whether results are sensitive to autocorrelation, we ran
additional models with an AR1 autocorrelation structure. We
obtained substantially very similar results (available from the authors
upon request).
Measurement
Dependent variables. We operationalize financial performance
using two measures to account for the fact that “good financial
performance” may mean different things in different organizations.
First, we use accounted operating result because it reflects the
organization’s ability to generate sufficient income and control
expenditures. Second, we use budget overrun because it reflects an
organization’s ability to follow a financial plan laid out by elected
politicians. Each of these variables is further specified next.
The first dependent variable is the accounted operating result in the
given year. This is a widely used indicator of the financial perform-
ance of Danish municipalities (Hansen, Houlberg, and Pedersen
2014). The operating result is measured as the municipality’s
accounted operating revenues (tax revenue and block grants from
the national government) per citizen minus its accounted operating
expenses and net interest payments per citizen—all in thousands
of Danish kroner. As stated earlier, these figures are obtained from
yearly statements made by the Danish Evaluation Institute for
Local Government. Between 2008 and 2012, the average accounted
operating result of the municipalities that we analyzed was a
1,527 Danish kroner surplus per citizen (approximately US$284).
However, there were major variations between “municipality years”;
the standard deviation is 1,406 Danish kroner per citizen, reflecting
that both deficits and surpluses are common.
The second dependent variable, a municipality’s budget overrun,
measures the difference between the accounted operating result and
the budgeted operating result in a given year, both per citizen in
thousands of Danish kroner. It is calculated according to the follow-
ing formula for municipality m in year t:
Budget Overrunm,t = Budgeted Operating Resultm,t – Accounted
Operating Resultm,t
Positive values indicate that a municipality has failed to reach its
budgeted financial results (i.e., an overrun). Negative values indicate
that the realized result is better than budgeted (i.e., a budget “under-
run”). Such a measure has previously been used to examine Danish
municipalities’ financial performance (Serritslew 2005). Again, these
figures are obtained from the yearly statements made by the Danish
Evaluation Institute for Local Government. In the period under
analysis, the municipalities’ average budget overrun was a modest
negative 84 Danish kroner per citizen, reflecting that, on average,
municipalities did a little better than budgeted. The standard devia-
tion is 1,117 Danish kroner per citizen, indicating that the modest
average overrun covers substantial variation across municipalities.
Some did far better than the budget; others did far worse.
It can be argued that budget overrun is not symmetrical around zero,
as doing better than budgeted is not necessarily positive and may imply
that inadequate service levels were provided. To address this, we con-
ducted an alternative analysis with only budget overruns (i.e., realized
results worse than budgeted). We found substantially similar results.
Independent variable. On the basis of the listings in the local
government handbook, we registered the names of all CEOs and
managing directors in each of the 98 municipalities for each year of
the analysis. From this, we then coded the gender composition of
296 Public Administration Review • March | April 2015
each municipality’s TMT for each year. Next, we used the Blau
index of dissimilarity to create the variable gender diversity. The Blau
index is calculated by the formula 1 – ∑pi2, where p equals the
proportion of each group of interest (i.e., male and female) and i
represents the number of groups (in this case, two). For gender
diversity, the index ranges from 0 to 0.5. A value of 0 represents
complete homogeneity (thus, a TMT consisting of either all male or
all female directors); a value of 0.5 represents maximum gender
diversity (an equal number of men and woman in the TMT). Both
of these extreme values are present in our data set. In the period
under analysis, the municipalities’ average index score was 0.257,
with a standard deviation of 0.196. In order to better reflect the
TMT’s impact on the municipality’s financial performance, the
independent variable is lagged by one year.
Moderating variable. The municipalities’ administrative structure in
the given year is determined based on information from the local
government handbook. Inspired by Bækgaard (2011), we distinguish
between sector-based models, mixed models, and executive board
models. A municipality is coded as having a sector-based model when
the local government handbook lists a number of administrative
departments with defined service areas (e.g., Department of Children
and Youth, Department of Elderly and Disabled, etc.). When
managing directors are presented as heading a defined service area but
no administrative departments are listed explicitly, the municipality is
registered as having a mixed model. Finally, when managing directors
are presented without any associated area of responsibility and no
administrative departments are listed, the municipality is coded as
using an executive board model. This is a crude measure that does not
necessarily capture the actual daily functioning of each TMT, but it
does reflect how the municipalities choose to present themselves in
the annual local government handbook.
Because we are particularly interested in the use of executive board
models, we create a dummy variable where executive board models
are coded as 1 and the other two board types are coded as 0. Next,
we create an interaction term between the measure of TMT gender
diversity and the dummy variable for executive board models in
order to test its moderating effect. In the analyzed period, 17.4
percent of the municipalities were registered as using an executive
board model. By comparison, Bækgaard (2011, 1069–70) finds,
based on short interviews with the CEOs, that 16.0 percent used an
executive board model in 2008.
Control variables. In order to better isolate the impact of gender
diversity in top management teams on the municipalities’ financial
performance, we include a number of control variables in the analy-
sis. First, it is likely that structural characteristics both influence
the tendency to employ woman in top management positions and
impact the financial performance of the municipality. To account
for this, we control for the municipalities’ population size, propor-
tion of inhabitants living in an urban area (urbanization), tax base
(a measure of municipal wealth), socioeconomic conditions (using
an indicator calculated by the Ministry of the Interior), and long-
term debts. All variables are time varying and lagged by a year to
better reflect causality. Second, we include a dummy variable indi-
cating whether the municipality resulted from the 2007 structural
reform, which led to an “oversupply” of managing directors in the
newly merged municipalities, potentially affecting the composition
Table 1 Correlations and Descriptive Statistics
Mean SD 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
a
Operating result 1.48 1.47 1
Budget overruna –0.10 1.14 –0.71 1
TMT gender diversity 0.26 0.19 0.10 –0.05 1
Population 53,565 56,911 0.13 –0.04 0.05 1
Population density 551 1,347 0.17 –0.07 0.12 0.39 1
Tax base 152,595 28,536 0.18 –0.19 0.21 –0.03 0.34 1
Socioeconomic index 0.94 0.25 0.13 0.01 0.07 0.19 0.20 –0.34 1
Debt 15,622 9,200 0.11 –0.06 0.06 –0.17 –0.01 0.06 0.03 1
Contracting 24.00 4.07 0.08 –0.17 0.14 0.01 0.07 0.21 0.04 0.14 1
Reformed 0.66 0.46 0.13 –0.13 0.15 0.09 0.55 0.38 0.30 –0.18 0.19 1
Social Democrat mayor 0.47 0.49 0.06 0.03 –0.02 0.14 0.04 –0.20 0.32 0.01 –0.12 0.09 1
“Other” mayor 0.19 0.39 0.01 –0.01 0.13 0.16 0.19 0.19 –0.13 0.05 0.05 0.19 –0.46 1
Elected board gender
diversity 0.40 0.08 0.18 –0.22 0.21 –0.04 0.29 0.45 –0.04 –0.01 0.17 0.31 0.04 0.13 1
TMT size 4.88 1.82 –0.06 0.15 0.09 0.29 0.09 –0.09 0.10 –0.04 –0.27 –0.16 0.17 –0.05 –0.07 1
Executive board 0.17 0.38 –0.06 –0.10 –0.09 –0.13 –0.11 0.05 –0.11 –0.08 0.10 0.04 –0.07 –0.01 –0.01 0.40 1
Election year 0.20 0.40 0.02 –0.14 0.01 0.00 –0.00 –0.03 –0.00 –0.01 0.01 0.01 –0.01 –0.01 0.09 0.03 0.00 1
a
In thousands of Danish kroner.
Note: All correlations > |0.1| are significant with p < .05.

of the TMT. Moreover, being merged has also been found to affect Table 2 GLS Regressions: Dependent Variable, Operating Result
the municipalities’ financial management (Hansen, Houlberg, and Model 1 Model 2 Model 3
Pedersen 2014). Third, we control for political factors by includ- Population 0.00*** 0.00*** 0.00***
ing a dummy variable for the party of the mayor. Liberal mayors (0.00) (0.00) (0.00)
are used as the reference category in relation to Social Democratic Population density 0.00 0.00 0.00
(0.00) (0.00) (0.00)
mayors and mayors from other parties. We also control for potential Tax base 0.00 0.00 0.00
effects of municipal council elections by including a dummy vari- (0.00) (0.00) (0.00)
able for the year 2009. Furthermore, we include a measure for the Socioeconomic index 0.95* 0.93* 1.04*
gender diversity on the council. We also control for the extent to (0.40) (0.40) (0.41)
Debt 0.00* 0.00 0.00*
which the municipality uses private contractors for service delivery. (0.00) (0.00) (0.00)
Finally, we control for the size of the TMT. Contracting 0.03 0.02 0.02
(0.02) (0.02) (0.02)
Results Merged –0.01 –0.05 –0.07
(0.30) (0.31) (0.30)
Table 1 reports the descriptive statistics and correlations among Social Democrat mayor 0.17 0.17 0.17
variables. The impact of top management team gender diversity on (0.19) (0.19) (0.19)
the municipalities’ operational results is presented in table 2. Three “Other” mayor –0.15 –0.17 –0.19
models are reported: in the first model, only the control variables are (0.25) (0.25) (0.25)
Elected board gender diversity 2.53 2.42 2.29
entered; in model 2, the variable measuring TMT gender diversity is (1.43) (1.46) (1.46)
added; and in the third model, the interaction term between TMT TMT size –0.23** –0.23** –0.24***
gender diversity and the use of an executive board model is included. (0.07) (0.07) (0.07)
Executive board –0.81*** –0.76** –1.27***
(0.25) (0.24) (0.32)
Hypothesis 1 proposed that higher TMT gender diversity is related Election year –0.06 –0.06 –0.05
to better financial performance. This hypothesis is not supported (0.12) (0.12) (0.12)
with regard to the municipalities’ operating results. Model 2 TMT gender diversity 0.52 0.01
indicates no significant relationship between TMT gender diversity (0.44) (0.46)
TMT gender diversity * Executive board 2.61*
and operating results. However, the degree of diversity of the TMT (1.08)
is found to have a positive impact on operating results when the Constant –2.08 –2.00 –1.58
municipality’s top management is organized as an executive board. (1.21) (1.22) (1.21)
In model 3, the interaction term between TMT gender diversity and Number of groups 91 91 91
Number of observations 442 442 442
the use of an executive board model has a significant positive coef- Wald chi-square 128.15*** 136.45*** 143.76***
ficient. This lends support to hypothesis 2, which proposed that the R2 0.14 0.14 0.15
relationship between TMT gender diversity and financial perform- Note: Robust standard errors in parentheses.
ance is moderated by the organization’s administrative structure. ***p < .001; **p < .01; *p < .05; two-sided tests.

In table 3, the impact of TMT gender diversity on the municipality’s As earlier, the municipality’s administrative structure is found to
budget overrun is presented. Following the same steps as earlier, three moderate the relationship between TMT gender diversity and
models are reported. Model 2 indicates no significant relationships financial performance, lending further support to hypothesis 2. In
between TMT gender diversity and the size of municipal budget municipalities applying an executive board model, more diverse
overrun. Thus, hypothesis 1 is not supported in this regard either. TMTs produce smaller budget overruns (or even budget underruns,
The Right Mix? Gender Diversity in Top Management Teams and Financial Performance 297
Table 3 GLS Regressions: Dependent Variable, Budget Overrun Panel 1 Dependent Variable: Operational Result
Model 1 Model 2 Model 3 Predictive Margins with 95% Confidence Intervals
Population 0.00 0.00 –0.00* 2.5
(0.00) (0.00) (0.00)
Population density 0.00 0.00 0.00 2
(0.00) (0.00) (0.00)
Tax base –0.00* –0.00* 0.00
1.5

Linear Prediction
(0.00) (0.00) (0.00)
Socioeconomic index –0.27 –0.27 –0.37
(0.30) (0.30) (0.31) 1
Debt 0.00 0.00 0.00
(0.00) (0.00) (0.00)
.5
Contracting –0.03 –0.03 –0.03
(0.02) (0.02) (0.02)
Merged 0.00 0.01 0.04 0
(0.20) (0.20) (0.19)
Social Democrat mayor 0.09 0.09 0.1 0 .1 .2 .3 .4 .5
(0.16) (0.16) (0.16) Diversity Index
“Other” mayor 0.30 0.30 0.32
(0.23) (0.23) (0.22) Other management structure Executive board model
Elected board gender diversity –3.17** –3.16** –2.92*
(1.21) (1.22) (1.24) Panel 2 Dependent Variable: Budget Overrun
TMT size 0.12* 0.12* 0.13*
Predictive Margins with 95% Confidence Intervals
(0.05) (0.05) (0.05)
Executive board 0.38 0.38 0.85*** 1
(0.21) (0.20) (0.25)
Election year 0.14 0.14 0.13
(0.11) (0.11) (0.11) .5
TMT gender diversity –0.08 0.37 Linear Prediction
(0.39) (0.40)
TMT gender diversity * Executive board –2.45** 0
(0.78)
Constant 2.55*** 2.56*** 2.11**
(0.74) (0.77) (0.81) -.5
Number of groups 91 91 91
Number of observations 442 442 442
Wald chi-square 72.08*** 72.54*** 78.64*** -1
R2 0.09 0.09 0.12
0 .1 .2 .3 .4 .5
Note: Robust standard errors in parentheses.
Diversity Index
***p < .001; **p < .01; *p < .05; two-sided tests.
Other management structure Executive board model
where the result is better than budgeted). In model 3, the interac-
tion term between TMT gender diversity and the executive board Figure 1 Interaction between TMT Gender Diversity and
model has a significant negative coefficient. Organization Structure

Figure 1 provides a graphical depiction of the impact of gender

diversity on financial performance. The graphs show marginal effects
for different values of diversity. One line depicts municipalities with
an executive board model and the other municipalities without
such a management structure. In panel 1, we see how the effect of
TMT diversity on the operational result is contingent on manage-
ment structure. Overall, municipalities applying an executive board
model produce poorer operational results compared with munici-
palities with other administrative structures (cf. models 1 and 2).
For low levels of diversity, the traditional management model has a
higher effect on operational result than the board of director model.
However, a more gender-diverse TMT makes the latter munici-
palities “catch up” with the former ones as the effect of diversity
increases for municipalities with the executive board model when
diversity is higher. For high levels of diversity, the two models have a
similar effect on operating results.
by an almost flat line. Turning to municipalities using an execu-
tive board model, we see that the line is decreasing indicating that
diversity’s effect on budget overrun decreases as diversity increases.
Together, the graphs in figure 1 underline how the effects of
diversity are contingent on management structure. In both panels,
the effect of diversity does not affect financial performance when
traditional structures are used, as illustrated by the almost flat lines
in panels 1 and 2.
To further scrutinize the importance of gender diversity for differ-
ent management structures and assess the substantial effect sizes,
in table 4, the interactions are further illustrated. Based on our
regressions we have calculated the predicted differences in operating
results and budget overruns for municipalities with high versus low
levels of TMT gender diversity.

In figure 1, panel 2, we offer a visual presentation of the marginal
effects of the results investigating budget overrun. The effect of
diversity on overrun is near constant for municipalities using tradi-
tional administrative structures for all levels of diversity indicated
298 Public Administration Review • March | April 2015
Turning first to the operating results, we observe a difference of
1,050 Danish kroner per citizen between those municipalities with
a high level of executive board diversity and those with a low level
(the effect illustrated by the rising line in figure 1, panel 1). This is
Table 4 Predicted Differences in Operating Result and Budget Overrun between Discussion
Municipalities with High/Low Values of Gender Diversity
Top management team gender diversity presents a paradox for
Operating Result in DKK Budget Overrun in DKK organizations. On the one hand, it may spark creativity and the
per Citizen: Difference per Citizen: Difference
between “High” Diversity between “High” Diversity
development and use of diverse knowledge and perspectives on
and “Low” Diversity and “Low” Diversity new ideas. On the other hand, diversity is likely to hamper effec-
Executive board model 1,050** –830** tive team work because of potential between-group differences in
values, perceptions, and cognitive styles. This study has advanced
Other model 10 150
the understanding of TMT diversity into the domain of public
Notes: High diversity is defined as mean +1 standard deviation; low diversity is
defined as mean –1 standard deviation.
sector organizations. It provides evidence that not only individual
**p < .01. managerial attributes but also the constellation of a management
team affect core organizational outcomes. Focusing on gender, this
study has suggested that organizations are likely to accrue posi-
a substantial result. The average municipality size is around 57,000 tive outcomes from gender diversity in management, but only if
citizens. This indicates that with an executive board management the management structure facilitates the effective use of individual
structure gender diversity is a distinct asset. When other manage- differences. The results of our analysis of the TMTs of more than
ment models are used, we observe no significant difference in 90 Danish municipalities indicate that municipalities with gender-
operating results between municipalities with high and low levels of diverse management groups obtain better financial performance—
TMT diversity (as indicated by the flat line in figure 1, panel 1). but only if they use the executive board management model, in
which the top management group shares responsibilities broadly.
Focusing next on budget overruns, we see a similar picture. When Conversely, our results indicate that the impact of gender diversity is
the executive board model is in use, there is a difference of –830 neutral when top managers are specialized and have clearly divided
Danish kroner between high- and low-diversity municipalities. The task responsibilities. These results shed light on the mixed results
negative number indicates that low-diversity municipalities run of previous research into team diversity, highlighting how different
larger budget overruns. Again, no significant difference is found structures may, to varying degrees, facilitate the productive use of
when other management models are in place. diverse human resources. The present analysis
Together, the parts of the table clearly indicate only deals with gender diversity, but whether
the relationship between TMT gender diver- When the executive board the management structure facilitates behav-
sity and financial results. For both operating model is in use, significant and ioral integration is potentially important for
results and budget overrun, the relationship is substantial differences exist how TMT diversity along various dimensions
contingent on the management model. When affects organizational outcomes.
the executive board model is in use, signifi-
between high and low levels of
cant and substantial differences exist between gender diversity. As pointed out by Pitts and Wise (2010), we
high and low levels of gender diversity. urgently need more knowledge about the out-
comes of diversity. This study has contributed to this agenda with an
In the next section, we discuss the results and their implications. explicit focus on management. Gender has previously been estab-
While the control variables are not of explicit interest here, they lished as one relevant dimension of diversity, with research finding
do yield two relevant results. First, it should be noted that greater notable differences between male and female public managers. The
gender diversity among elected politicians is negatively related to results of this study further establish the relevance of gender, show-
budget overruns. It is beyond the scope of the present article to ing that given the right structure, a gender-integrated management
speculate about the relationship between the political and admin- team can outperform a gender-homogenous TMT.
istrative systems, but this provides further support for the general
relevance of gender to financial decision making. The data do not As with any other study, there are limitations that should be noted.
show a positive impact of elected board diversity on financial per- Focusing on gender diversity is, as argued earlier, an important task
formance with regard to operating results, however. An explana- for research. However, it may be that other management charac-
tion for this could be that elected politicians are more attentive to teristics amplify or dampen the effects of gender. Data limitations
the budget than the actual financial accounts. The second notable inhibited the inclusion of other relevant dimensions in the present
result is that TMT size is negatively related to the municipalities’ study. Future studies should look into the effects of other characteris-
financial performance; larger TMTs, on average, produce poorer tics and how different dimensions of diversity interact. For instance,
operational results and bigger budget overruns. These results could research on private sector organizations has suggested that diversity in
suggest that behavioral integration is impeded when the number education, experience, and age are all relevant for understanding the
of TMT members increases. Although we were not explicitly operational dynamics in top management teams (e.g., Knight et al.
interested in TMT size, to further control for a possible moderat- 1999; Kochan et al. 2003; Van Knippenberg and Schippers 2007).
ing effect of TMT size on the hypothesized relationship between
TMT gender diversity and financial performance, we included This study has focused on the association between TMT diversity
an interaction term for TMT gender diversity and TMT size to and financial performance. While the analyses have allowed us
the analysis. However, the original effects remained unchanged, to speculate about diversity’s impact on group processes, future
and no additional effects of TMT size for either the municipali- studies should investigate underlying mechanisms in finer detail.
ties’ operational results or budget overruns were found (results not This would ideally involve laboratory of field experiments that can
reported). identify causal dynamics. Such studies could follow the work of
The Right Mix? Gender Diversity in Top Management Teams and Financial Performance 299
TMTs in detail and outline why and how human diversity affects
organizational outcomes.
Further, in this study, we explored team dynamics but with the
organization as the effective unit of analysis. We urge future research
to consider teams as units of analysis. While there is a long tradition
of team-based research in the general organizational behavior litera-
ture (Van Knippenberg and Schippers 2007), this type of research
is rare in public administration. Consequently, we know too little
about team dynamics in public sector organizations. Exploring team
diversity would be a well-suited starting point for such research.
Finally, an avenue for future research relates not to the outcome of
TMT diversity but to antecedents. With the demographic charac-
teristics of managers being important for organizational outcomes,
we should increase our understanding of the rationales organizations
use in hiring managers with diverse characteristics. Factors such as
current TMT composition, administrative structure and strategy,
and environmental demands could be expected to relate to the
degree of TMT diversity pursued by public organizations.
Gender diversity has the potential to lead to superior organizational
outcomes, but it does not automatically do so. The present analysis
implies that to reap the benefits of diverse top management teams,
the management structure must facilitate behavioral integration
between TMT members. However, more knowledge of other con-
tingencies and pitfalls is needed.
Notes
1. Besides their tax revenue, municipalities are subsidized by block grants from the
national government (Greve 2006).
2. The basis of the current system of local government in Denmark was created
in the 1970 municipal reform (Kommunalreformen), in which 1,388 so-called
parish municipals (sognekommuner) and market towns (købstæder) were organized
into 275 municipalities. This structure existed until 2007, when a new structural
reform (Strukturreformen) reduced the number of municipalities to 98. Thirty-
three of the existing municipalities continued unchanged, whereas the remaining
65 were new entities based on (more or less) voluntary amalgamations. The five
municipalities on the island of Bornholm “jumped the gun” on the structural
reform and merged into one municipality in 2003 (Blom-Hansen et al. 2012).
3. See http://krevi.dk/noegletal [in Danish]. Since June 1, 2012, the Danish
Evaluation Institute for Local Government has been a part of the National
Institute for Local and Regional Analysis and Research, an independent institu-
tion under the Ministry of Economy and the Interior.
4. See http://www.noegletal.dk/ [in Danish].
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