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Diversity & Inclusion

Female CEOs more likely to face activists, dismissal; defenses needed

Julie DiMauro  Regulatory Intelligence and E-learning Expert

Julie DiMauro  Regulatory Intelligence and E-learning Expert

Activist shareholders are significantly likelier to target companies led by female chief executive officers than their male counterparts, and female CEOs face a greater likelihood of dismissal, according to recent studies.

Because activists can have influential sway over a business’s corporate governance — and because women are increasingly gaining corporate leader roles and board positions — all business executives, board members and their support staff should be prepared to counter any challenges that appear to rest on negative stereotypes about women.

The study on activism, entitled Do women CEOs face greater threat of shareholder activism compared to male CEOs? A role congruity perspective, was conducted by University of Alabama researchers last year and published in the Journal of Applied Psychology.

The study found that female CEOs are 50% more likely to be targeted by shareholder activists. “Female CEOs may face additional challenges not faced by male CEOs,” the study said.

The authors note that shareholder activism is increasing in American financial markets in general, sometimes in the form of one, large investor telling the CEO what changes to make and sometimes in the form of multiple investors simultaneously targeting the company’s top leadership collectively.

To determine whether a CEO’s gender influenced whether their company would be the target of activist investors, the study authors examined the Securities and Exchange Commission (SEC) filings the activist investors made via their public companies between 1996 and 2013.

They reviewed these SEC filings while accounting for differences other than gender that might affect activists’ decisions, controlling for variables including firm size, profitability, leverage, dividend yield and industry competition.

In another recent study conducted by largely the same authors, called You’re Fired! Gender Disparities in CEO Dismissal, the authors found that a CEO’s gender influences the likelihood of that executive’s dismissal.

Specifically, they found that female CEOs are significantly more likely to be dismissed than male CEOs, and, perhaps more importantly, that male CEOs are less likely to be dismissed when firm performance is high (compared to when it is low), whereas female CEOs have a similar level of dismissal likelihood, regardless of firm performance.

The researchers relied on the press coding of news releases and media accounts of CEO departures, along with data on CEO age and continued affiliation with the firm, to determine whether a particular CEO left voluntarily. They merged the CEO data with large-scale databases such as ExecuComp and BoardEx.

The authors noted that they controlled for factors that could skew the results, such as whether the woman was running a company undergoing a significant transformation and whether the company was solidly profitable or not.

“Dismissing the CEO is usually viewed as evidence of good corporate governance as it suggests that the board is taking its monitoring role seriously, however our research reveals there are invisible, but serious, gender biases in how the board evaluates CEOs and its decision to retain or fire particular CEOs,” said Dr. Sandra Mortal, one of the report’s authors and associate professor at the University of Alabama Culverhouse College of Business.

Another one of the authors of both studies, Dr. Vishal Gupta, said research on the You’re Fired! study started because consulting firms, along with business media outlets, have raised concerns about the higher incidence of dismissals among women CEOs as compared to men.

This study’s results are reminiscent of findings showing female employees in financial services can be punished more harshly than their male counterparts for similar missteps, according to the report published by the Stigler Center for the Center of the Economy and State in 2017.

In that report, the authors analyzed data on the 1.2 million U.S. financial services employees registered with the Financial Industry Regulatory Authority from 2005 to 2015 showing that a female adviser who commits some form of misconduct — such as churning a client’s account — is 50% more likely to lose her job than a male adviser who breaks similar rules.

The results of the latest study of female CEOs study adds to the growing data about the extra pressure and scrutiny directed at women executives, even after reaching the top of the corporate hierarchy.

These findings matter because activist pressure can perpetuate negative gender stereotypes of female executives and hinder a business from giving women the time and support needed to realize their corporate goals.

To combat the threat of activist investors, the authors recommended that all CEOs give detailed presentations about the strategy and direction of the company, fight proxy battles for board seats, and hold meetings with stakeholders to ensure they know management is leading the firm well. And all boards should consider adding backstops to make up for any gaps in any executive’s particular experience to guard against avenues for activist exploitation. In addition, professionals and firms with expertise in defending companies against activist investors — “activist defense,” a service that many Wall Street banks now offer — might be a good resource to tap as well for their best practice guidance.

Authors of the You’re Fired! study say they hope their research findings increase awareness of the differential treatment meted out to women in senior management positions and encourage action by those with the power to eliminate gender bias from CEO dismissal and other corporate governance moves.


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