On the Board


There was a time — not so long ago — when the composition of most corporate boards did not reflect that of society at large. Recently, though, corporate boards now have greater representation of women. General social movements aligned with improving diversity, equity, and inclusivity play a part in this ongoing evolution, but a powerful influencing force has also come from the industry itself.

According to research conducted by Culverhouse faculty and published in the prestigious Journal of Financial Economics, the “Big Three” investment firms —State Street Global Advisors, Blackrock, and Vanguard — directly led individual successful shareholder activism campaigns to encourage corporate board gender diversity. The Big Three, so-called for the fact that they together manage over $15 trillion and 75 percent of mutual and exchange-traded funds and have board voting power at thousands of firms, wield enormous influence on the industry and arguably greater society.

Those campaigns, discussed in “The Big Three and board gender diversity: The effectiveness of shareholder voice,” included visible and memorable public influence efforts such as State Street Global Advisors’ “Fearless Girl” public art project wherein Wall Street’s notorious charging bull is faced down by a defiant bronze statue of a little girl.

Less visibly, the campaigns also included the practice of voting against the reelection of directors at firms that did not seem to be moving toward improving the gender composition of their boards. For example, the authors mention that in 2017, “State Street threatened adverse consequences for boards that failed to make progress, saying it would vote against reelecting the nominating/governance committee chair at companies with inadequately diverse boards.”

The authors of the paper, which include Culverhouse’s Drs. Vishal Gupta, professor of management and the Fred and Martha Bostick Faculty Fellow, and Sandra Mortal, professor of finance, discovered that the campaigns led firms over the examined period of 2016 to 2019 to add at least 2.5 times the number of females to their respective boards.

Furthermore, there was a 76 percent increase in new female board members and an overall 11 percent increase in the overall proportion of females on boards over that same period.

In the paper the authors posit that campaign timing — and target — explain the outcomes:

[…] The timing of the increase corresponds to the timing of each asset manager’s campaign: the share of a firm’s equity held by State Street predicts increases in gender diversity starting in 2017 while the holdings of Vanguard and Blackrock, which started their campaigns later, begin predicting more female directors only in 2018.

The increase in female directors is also greater among firms targeted by the individual asset managers’ campaigns. State Street focused on firms with no female directors, while BlackRock focused on firms with less than two female directors. The growth in female directorships reflects these two asset managers’ different targeting.

However, despite the gains in female representation on boards, women still compose less than one in five board seats. The authors found that while male leadership limited women’s movement into board seats because women lacked prior executive experience, the Big Three’s campaigns were ultimately effective as they introduced the idea that boards could consider female board candidates from outside the usual professional networks or with non-CEO experience.

The broader implications of this research, Gupta and Mortal note, is that activist shareholders, specifically the Big Three can leverage their might and bring about change in board racial diversity, sustainability, and other areas of concern. In a joint statement, they said, “Investors’ focus on increasing board gender diversity will help add more women to corporate boards, which should also increase their visibility in the corporate world. It will also hopefully increase the representation of women in upper echelon roles and across different levels in the organization.”

Furthermore, the authors noted that, “Given the findings, future studies might look into the impact of institutional investors on other key areas including board racial diversity and climate change. We are currently working on research looking at whether women’s appointments to boards mitigates board members’ ex-post settling up.”

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