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The Big Three and Board Gender Diversity: The Effectiveness of Shareholder Voice

Posted by Todd A. Gormley (Washington University in St. Louis), on Wednesday, December 30, 2020

Editor’s Note: Todd Gormley is Associate Professor of Finance at Washington University in St. Louis Olin Business School. This post is based on a recent authored by Prof. Gormley; Vishal K. Gupta, Associate Professor of Management at University of Alabama Culverhouse College of Business; David A. Matsa, Professor of Finance at Northwestern University Kellogg School of Management; Sandra Mortal, Professor of Finance at University of Alabama Culverhouse College of Business; and Lukai Yang, Ph.D candidate at University of Alabama. Related research from the Program on Corporate Governance includes Politics and Gender in the Executive Suite by Alma Cohen, Moshe Hazan, and David Weiss (discussed on the Forum here); The Agency Problems of Institutional Investors by Lucian Bebchuk, Alma Cohen, and Scott Hirst (discussed on the Forum here); Index Funds and the Future of Corporate Governance: Theory, Evidence, and Policy by Lucian Bebchuk and Scott Hirst (discussed on the forum here); and The Specter of the Giant Three by Lucian Bebchuk and Scott Hirst (discussed on the Forum here).

In 2017, “The Big Three” institutional investors (BlackRock, State Street, and Vanguard) launched campaigns to increase gender diversity on corporate boards. BlackRock and State Street’s campaigns included policies of voting against directors’ reelection at firms that made insufficient progress toward a gender-diverse board. In our paper, The Big Three and Board Gender Diversity: The Effectiveness of Shareholder Voice, we exploit cross-sectional variation in The Big Three’s ownership stake to examine the impact of these investor-driven campaigns and shed light on the frictions that slow women’s ascension to corporate leadership positions.

Our analysis shows that The Big Three’s influence campaigns had a large impact on boards’ gender diversity. During the years of the campaign (2017-2019), one standard deviation greater Big Three ownership is associated with an 80% increase in the net flow of new female board members and an 11% increase in the overall proportion of female directors. Both fewer female director departures and more new additions drive this increase. Even our most conservative estimates imply that The Big Three’s campaigns led firms to add 2.5 times as many female directors in 2019 as they had in 2016, accounting for almost half of the total 2016-to-2019 increase in gender diversity and about a third of the decline in all-male boards over that same period. While large, these estimates likely reflect a lower bound. For example, they do not account for the positive spillover effects of The Big Three’s campaigns onto firms in which they own smaller stakes.


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