Do Women CEOs Face Greater Shareholder Activism Compared to Male CEOs? A Role Congruity Perspective

Vishal Gupta is associate professor in the University of Alabama Culverhouse College of Commerce; Sandra Mortal is associate professor University of Alabama Culverhouse College of Commerce; Daniel B. Turban is Emma S. Hibbs/Harry Gunnison Brown Chair of Business and Economics and Professor of Management at the University of Missouri. This post is based on a recent article, forthcoming in the Journal of Applied Psychology, by Prof. Gupta, Prof. Mortal, Prof. Turban,  Seonghee Han, Assistant Professor of Finance at Pennsylvania State University at Abington, and Sabatino Silveri is Assistant Professor at the Fogelman College of Business and Economics at University of Memphis. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here) and The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here).

This article examines whether female CEOs face more threat of shareholder activism compared to male CEOs. Over the last two decades, there has been a gradual increase in the number of women CEOs, so that women now occupy 4.8% of CEO positions among Fortune 500 firms. The ascent of women to the CEO position has stimulated considerable interest in understanding their experiences in these roles (Glass & Cook, 2016). CEOs are responsible for managing the firm on behalf of shareholders, who are generally passive owners of stock in the firm. However, some shareholders attempt to redirect managerial decisions and advise managers on how they should lead the firm. Such shareholders are considered activist investors and are generally seen as a threat by management (Gantchev, 2013). To quote Herscher (2015), “activist investors are essentially there to say they think a company is not being run as well as it could be—in a very public way”. Not surprisingly, it is widely believed that on the issues and decisions that really matter for the firm, managers and activists are almost always on opposite sides (Gramm, 2016).

Prior literature suggests three possibilities regarding the role of CEO gender in shareholder activism. First, shareholders are interested in maximizing the returns to their investment, so that they will be agnostic about CEO gender. In this situation, male and female CEOs are equally likely to come under the threat of shareholder activism. Second, because women have to surmount numerous barriers and obstacles on their way to the CEO position, women CEOs are generally viewed more positively than male CEOs by organizational stakeholders (such as activist investors). Consequently, women-led firms should face less threat of shareholder activism compared to male-led firms. Finally, gender-role stereotypes that associate leadership roles with masculine stereotypes may foster prejudice against women CEOs. Because of stereotypical expectations (leadership = male, but leadership ≠ female), women are seen as less likely than men to succeed in leadership roles. As a result, women who reach the upper-most levels of organizational hierarchy will encounter challenges and threats not faced by their male counterparts. Indeed, research under the umbrella of ‘glass cliff’ suggests that women managers will be subjected to greater scrutiny and criticism than men, and will be evaluated less favorably, even when occupying exactly the same leadership positions as men (Ryan & Haslam, 2007).

We theorize that investors are susceptible to the pervasive bias associated with gender role stereotypes. In particular, stereotypes have more influence in situations with ambiguous evaluative criteria (Heilman & Eagly, 2008), which describes the circumstances in which CEOs’ actions and contributions to organizational outcomes are assessed (Auster & Prasad, 2016). We therefore posit that women CEOs are more likely than male CEOs to come under threat of shareholder activism. Additionally, sometimes a number of activist investors target the firm at the same time, which is usually referred to as “wolf-pack attacks”. These so-called wolf-pack attacks can result either from deliberate coordination between various activists or due to “herd behavior” among investors so that some activists simply mimic the actions undertaken by others (Scharfstein & Stein, 1990). Notably, larger numbers of activist investors congregating on one firm suggests widespread discontentment with the firm’s management and tends to be highly problematic for CEOs (Brav, Jiang, Partnoy, & Thomas, 2008). We posit that female CEOs are more likely than male CEOs to come under the threat of these wolf-pack attacks.

We test our predictions using Schedule 13D filings made by activist investors in public US firms. These filings are obtained from the SEC’s EDGAR database for the 1996 to 2013 period. Shareholders who acquire more than 5% of the voting stock of a public company with the intention of influencing its management are required by the Securities and Exchange Commission (SEC) to file a Schedule 13D. Our sample includes over 25,000 firm-year observations (for 3,026 unique firms) with an activist filing occurring in over 1,500 firm-years (for 1,090 unique firms). Our analyses controlled for several possible confounding factors, such as (but not limited to) Firm Size, Profitability, Leverage, Dividend Yield and Industry Competition. In general, we found that women CEOs have almost a 50% higher probability than male CEOs of becoming a target of shareholder activism, and that women CEOs were almost 60% more likely than male CEOs to come under simultaneous threat from multiple activist investors. Specifically, the probability of a firm being targeted by an activist is 6%, however if the firm is led by a female CEO, then this probability becomes 9.4%. For multiple activists (wolf-pack attacks), the probability of a firm being targeted is 1%, but if the firm is led by a female CEO, then this probability is 1.6%. To enhance confidence in our findings, we conduct several additional analyses, such as testing predictions in a propensity-matched sample of male- and female-led firm-years and estimating two-stage regression model with an instrumental variable. Results remain consistent across the different specifications.

Our findings contribute to the academic and popular literature in several ways. First, our results suggest that female (compared to male) CEOs have to deal with additional challenges imposed by activist investors and are more vulnerable to activists’ efforts towards wielding power in the firm. Such results support the proposition that women executives receive more scrutiny and face more challenges than men in similar positions (Ryan & Haslam, 2007). The additional challenges can escalate over time and become a significant distraction for women CEOs, eventually undermining their leadership effectiveness. More broadly, our results suggest that gender stereotypes are alive, well, and busy producing workplace discrimination even at the highest level in the firm. Furthermore, because the CEO position is high-profile and public, our finding that women CEOs receive more scrutiny and interference from external constituents is also troubling for women who occupy other C-level positions (i.e., CMO, CFO, CIO, to name few). It is possible that women in these C-level positions also may be more likely than their male counterparts to receive unwanted direction from external constituents who want to tell them how to their job.

Based on our results, it seems reasonable to suggest that CEO gender may be a crucial, yet neglected, aspect of shareholder activism, and so it deserves greater attention going forward. We hope the results of our research will alert managers, investors, and policy-makers that the insidious influence of gender stereotyping may bias activism decisions even without any conscious awareness on the part of the activists.

The full article is available for download here.

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