Women at the Bank of Israel: The economic XX factor

Since former BOI governor Stanley Fischer stepped down from his position in January, and a nine-month saga of searching for a replacement unfolded, a new governor has finally been appointed, and she is woman.

By NIV ELIS
Karnit Flug 370 (photo credit: REUTERS/Ronen Zvulun)
Karnit Flug 370
(photo credit: REUTERS/Ronen Zvulun)
The nine-month saga that transpired between Stanley Fischer’s announcement that he would step down as Bank of Israel governor and the nomination of his deputy, Karnit Flug, to replace him, recalls Winston Churchill’s saying on US decision-making: “You can always count on Americans to do the right thing – after they’ve tried everything else.”
Yet Israel and America’s bumbling decision-making processes both managed to turn out historic results this month. Flug’s nomination to be the first woman to lead the Bank of Israel comes less than two weeks after the US picked Janet Yellen to be its first female Federal Reserve chairman.
Like Flug, Yellen was not the first choice for the job. US President Barack Obama was expected to nominate Larry Summers, a former Treasury secretary and one of his top economic advisers, until heavy public pressure from Democratic senators caused Summers to withdraw his candidacy.
Summers famously got himself into hot water as the president of Harvard University when he suggested that women were poorly represented in the highest stratas of science because they were innately less talented in that field.
While Flug’s experience, talent and intention to carry on Fischer’s successful policies are the personal qualities that set her up for success in the job, the fact that she is a woman filling a key economic post may have broader implications, not just socially but economically.
Handing Flug the keys to BoI is part of an important growing trend of women breaking ground to lead key economic institutions. Following the womanizing antics of Dominique Strauss-Kahn, Christine Lagarde took over for him as the managing director of the International Monetary Fund. Angela Merkel, though a politically elected leader, is arguably the most important policy-maker in the European Union.
Yet there is still a long way to go. The Financial Times noted that there are only 17 women heading the world’s 177 central banks (Yellen and Flug will raise that number to 19).
Yellen will become the first woman to lead a major economy’s central bank, and women are underrepresented on many of the committees that make key decisions. They are altogether absent among the 23 members of European Central Bank’s board, as well as the Bank of England’s.
The same trend is seen in economic academia and throughout the business world.
Women still make up less than a third of economic PhD graduates from the leading institutions, according to a 2011 study by Galina Hale at the Federal Reserve Bank of San Francisco and Tali Regev of Tel Aviv University. They make up only 12 percent of the faculty at the same institutions.

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Women still represent only 17% of board members in S&P 500 companies, and only 4% have women for over a third of their directors, according to a 2012 Ernst & Young study.
In Israel only 15% of board members are women, according to Catalyst.
Flug’s appointment is another crack in that glass ceiling, adding another role model that may encourage more women to enter a field still seen as a boy’s club.
That’s important because there is a growing field of evidence suggesting that getting more women into more male-dominated sectors is good for the economy.
A report by the Harvard Business Review in April found a correlation between women’s economic success and GDP.
“If women in the United States, Japan, and Egypt were employed at the same rates as men, the GDPs of those countries would be higher by 5%, 9%, and 34%, respectively,” the report said.
Israel ranked 27th in women’s economic success.
The Financial Times quoted the Swedish Corporate Governance Board’s 2013 annual report as saying “several studies show there is a positive relationship between the fraction of female board members and sales growth, stock returns, and return on equity, assets, and invested capital.”
A 2007 report by Catalyst found that companies with more than three women on their boards had 11.5% higher return on equity and sales on average.
Even with the correlation shown in these studies, it is tough to establish causality, so it’s not clear if the correlations mean diversity is profitable, or profitable companies are more forward- thinking on gender equality.
Either way, Flug’s nomination for BoI governor is an encouraging step for Israel.


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Stanley Fischer