Female CEOs are more likely to be targeted by shareholder activists than male CEOs, according to a study from Arizona State University (ASU). The research examined shareholder proposals at Fortune 1000 companies from 2003 to 2013.
“Controlling for other reasons investors target certain firms, our models show that gender alone explains significant activism specifically toward female CEOs,” said Christine Shropshire, associate professor of management at the W.P. Carey School of Business at ASU in Temple, Ariz.
“All else held equal, female CEOs have a 27 per cent likelihood of facing activism, while their male counterparts have a near zero predicted likelihood of being targeted.”
One possible reason for the discrepancies could be activists perceive a female CEO appointment as a “status threat” to their investment, said the authors.
“Activists look to their environment to resolve the equivocality between the high status of CEOs and lower status role of females. Gender bias research reveals consistently negative outcomes for female leaders, which collectively informs our understanding of gender as a diffuse status cue. From this perspective, activists interpret the appointment of a female CEO as a status threat to their investment and target their efforts accordingly.”
Even if it seems very biased behaviour in the collective way, “it’s rational, it makes sense that you would speak up because this is informing a threat to the value that you hold in the company,” said Shropshire.
Underlying the activism are “gender role theories” and stereotypes around male and female leadership. How people evaluate and assess a new person is driven a lot by underlying biases, said Shropshire.
“There’s evidence of more irrational gender bias investor behaviour that we would say actually informs a more rational, risk-driven response from activists. They see that this is a status threat to their investment, they know that there’s this negative, this hit to the value that they hold, so that makes them more likely to speak up — regardless of whether they’re asking for a seat on the board or they’re interested in seeing further gender diversity on the board.”
It makes sense investors’ reactions are considered rational ones, said Heather Foust-Cummings, vice-president and centre leader at the Catalyst Research Center for Equity in Business Leadership in Boston.
“If you believe your investment will be negatively impacted, it makes sense that you would be concerned. It’s twofold here: a) We wouldn’t have problem if gender bias didn’t exist and then b) because gender bias does exist, we have this problem.”
However, the study doesn’t differentiate between shareholder activism focused on a broad range of environmental, social or governance issues and change-of-control activism, said Kevin Thomas, director of shareholder engagement at SHARE (the Shareholder Association for Research & Education) in Toronto, where short-term investors try to make changes to wring some short-term profits.
In the United States, for example, there have been shareholder proposals related to non-discrimination and equal employment policies and increasing diversity, “so those proposals probably were not at all hostile to the idea of female CEOs but they would get lumped in with this other group,” he said.
Many institutional investors believe that having women in leadership is actually a good thing for the long-term value of companies they invest in, he said.
“Their focus is on the performance indicators of the company and it’s not going to tend to be swayed by, in the long term, who the CEO is.”
But the researchers didn’t find a difference between social issue-related activism and financial or governance-related activism, said Shropshire.
“We find the effects consistent across both of those broad categories, so the focus on the overall effect is including all of those categories of activism.”
The researchers also looked at how the content provided by the media, financial analysts and the CEO’s firm influences activism.
“Given the strength of status threat, there are also likely gender differences in the impact of the content provided, whether it mitigates or reinforces the status threat and investors’ subsequent activism,” they wrote.
When women are in roles that are beyond the scope of traditional stereotypes, they always face greater attention and greater scrutiny, said Foust-Cummings.
“There are a number of stereotypes, of course, that exist for women in the workplace and women in society, and this is what we see play out, is that women are rewarded and connected to feminine behaviours, so women are viewed as taking care, whereas men are viewed as having masculine behaviour where they take charge and they are rewarded for that.
“So women are often rewarded for supporting behaviour or rewarding behaviour — mentoring and networking and teambuilding — whereas men are often recognized and rewarded for being tough and taking charge and (being a) problem-solver and delegating and being authoritative, and so when we see people hold positions that are inconsistent with those stereotypes, then it makes us perk up… and so the scrutiny that these women are facing is because of these steoretypes.”
There’s still a disconnect between mythologies and biases about women in leadership and reality, said Thomas.
“The reality is that companies with women on the board or women in leadership positions are performing better than their peers, especially over the long run, so that doesn’t necessarily speak to causality, but it does mean that there’s still an idea, especially among conservative investors, that somehow this is an anomaly, he said.
“But there’s a growing group of investors and shareholders that are now looking for companies… that have better performance and diversity because that co-relates with value.”
There is still a viewpoint out there that is hostile to women in leadership, as seen in the “dismal” performance on board diversity and the number of female CEOs, said Thomas.
“But on the positive side of that, there’s an increasing understanding of the importance of diversity not just from a shareholder value perspective but from a values perspective.
“We believe this is the right thing to do at the right time, and there are a lot of leaders who get that and the more that shareholders can contribute to that, and be vocal about that, the better.”
The researchers also looked at firm communications, such as press releases, to understand how they played a part.
“Making gender more salient via impression management efforts entails a greater cost for female-led firms, as shareholder activists are already sensitive to the status threat and more likely to speak up and direct their activism toward these firms,” said the authors.
“While all firms vary in the content and gendered nature of their communications, we propose a differential moderation effect depending on gender, wherein the relationship between female CEO succession and shareholder activism is strengthened more by gendered impression management than the relationship between male CEO succession and shareholder activism.”
For female-led firms to get even close to the baseline predicted likelihood of activism male CEOs face, they would have to take all of the femaleness out of their press releases, said Shropshire, and “be very careful to comb (through) what they’re saying to make sure it’s not female-type words at all, and actually increase the maleness of their press releases... it’s a staggering effect.”
If companies and investors pay closer attention to the language they use, they can actually reduce the likelihood of this activist investor behaviour occurring, said Foust-Cummings.
“When a company is keenly aware of the extent to which they use gendered language to discuss a company’s business and performance, they can actually influence the market response,” she said.
“So when companies who have female CEOs use gender-typical language less — and that may be even not using the CEO’s name in press releases as much as they’ve used it in the past — then we can avoid those cultural stereotypes getting replicated and reinforced by the media and then, ultimately, avoid the negative impact on the company’s stock price and the shareholder activism.”
Companies can have quite an influence in this regard, said Foust-Cummings.
“Many times, the information that the company provides is quoted directly and to the extent that it is quoted directly, then I think we have a real chance at making an impact or a change.”
However, Thomas said it’s interesting to downplay the gender side at the same time that there’s such a strong push to speak up about how diversity is actually a good thing for a company.
“When we look at boards where we see uniformity and who’s represented on that board, we tend to think that says there is not sufficient diversity of opinion on that board, and therefore you’re more liable to get group-think which is more negative for the company. So we almost want to see the company speak more to the fact that it is taking more of an active interest in developing new leadership and changing the culture within companies.”
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