Research: Activist Investors Are More Likely to Target Female CEOs

January 22, 2018 Vishal K. Gupta

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Cristina Marx/EyeEm/Getty Images

Mary Barra, Meg Whitman, Indra Nooyi: These are just three of the women who have successfully broken through the notorious “glass ceiling” to become CEOs of large public firms. Although women are still underrepresented at the top of corporations, there is growing interest in understanding whether men and women have different experiences as CEOs.

Our research examined whether male and female CEOs are treated differently by activist investors, who pressure firms to alter or change their strategic policies and decisions. We found that female CEOs face a greater threat of shareholder activism than male CEOs.

Shareholder activism is on the rise in American financial markets. Managers generally view activists antagonistically, as bullies who publicly express dissatisfaction with management and demand changes in the firm. At Yahoo, for example, activist shareholders were quite vocal in 2008, asking the firm to accept an acquisition bid from Microsoft, though it was not consistent with the CEO’s strategy for the firm at the time. And likening activists to those “playing fantasy football” as opposed to “actually playing the field,” Irene Rosenfeld, former CEO of snack-food giant Mondelez, noted in 2015 that “advising others to act in a certain way doesn’t seem hard for people who don’t have to do it themselves.”

Much of the activism discussed in the media involves a large investor telling the CEO what to do. Sometimes, however, multiple activist investors engage in what’s called a wolf pack attack, and simultaneously target the firm. Some high-profile examples of companies targeted by wolf pack attacks in recent years are Darden Restaurants (owner of the Olive Garden chain) and PetSmart. Activists are prohibited by law to group together against management without publicly disclosing their efforts. But because it is difficult to prove activists have formed a group, activists are often able to act together.

We wanted to know whether a CEO’s gender influenced whether their firm would be targeted by activist investors. Our reading of the relevant academic literature suggested three potential, but conflicting, answers:

  • No, men and women are not treated differently, because activist investors are “gender blind.” Since investors are focused on maximizing the value of their holdings in the firms, they should not care much about the gender of the CEO. Therefore, there would be no difference in whether they target men- or women-led firms, accounting for firm performance.
  • Yes, female CEOs are targeted less frequently, because investors view women more favorably. With the additional barriers that women have to cross to become CEO, female CEOs may appear to be more competent than male ones, and thus women-led firms will be seen as better managed. As a result, female CEOs should be less likely to be targeted by shareholder activism.
  • Yes, female CEOs are targeted more often, because investors have a “think manager, think male” mentality. This suggests that because of gender stereotypes, people tend to see managers as more similar to men than to women. Many academic studies have reported that attributes associated with the manager role (decisiveness, aggression, competitiveness) are often antithetical to those associated with women in our society. Such gender stereotypes may lead to the perception that women are not fit to be managers, resulting in more activism being directed at firms led by female CEOs.

So if activists are gender blind, they will be agnostic to CEO gender. If activists view women as more-competent managers than men, they will be biased toward female CEOs. And if activists view men as more suited for the managerial role, they will be biased toward male CEOs.

We hypothesized that the third answer would be true: We expected that investors were susceptible to the pervasive bias associated with gender role stereotypes, and would be more likely to target female CEOs than male CEOs. Gender stereotypes are pervasive, and tend to have more influence in ambiguous situations, which is often the case when linking CEO decisions with firm outcomes.

To test this, we analyzed data from 3,026 large U.S. firms between 1996 and 2013. We identified activist investor activity by looking at Securities and Exchange Commission (SEC) records. Shareholders who acquire more than 5% of the voting stock of a public company with the intention of influencing management are required by the SEC to file a Schedule 13D form. We found over 1,500 13D filings for 1,090 firms in our sample.

We tried to account for any other differences besides gender that might affect activists’ decisions. Because firms that hire female CEOs may differ from firms that hire male ones, we controlled for a relatively large set of variables, including firm size, profitability, leverage, dividend yield, and industry competition, in a probit model. We also utilized a statistical procedure, propensity score matching, which is designed to match female-led firms and male-led firms that are similar on key dimensions. More broadly, we conducted several additional analyses to rule out alternative explanations. Regardless of our control variables, econometric specifications, and regression techniques, our results about CEO gender were consistent.

We found that firms in our sample led by male CEOs were targeted by an activist 6% of the time during the study period, versus 9.4% when the CEO was female. Wolf pack attacks occurred for male and female CEOs at 1% and 1.6%, respectively. Even though these differences appear small, this means that firms with female CEOs were 50% more likely to be targeted by activists and approximately 60% more likely to be targeted by multiple activists.

Although activism is rare overall, it tends to be a highly publicized event, and the fact that female CEOs are targeted more than male CEOs is troubling, as it may perpetuate negative gender stereotypes of female executives. People perceive activism to be an indicator of how well a firm and its CEO is performing, so greater activism against female CEOs may reinforce the notion that they are not able to manage firms as well as men.

Our research design does not allow us to examine exactly why activist investors target female CEOs more. However, our findings are consistent with the “think manager, think male” logic, since the other potential reasons are already statistically accounted for in the regressions. We were able to observe only activist investor activity that was highly public; filing a Schedule 13D with the SEC involves a formal declaration by an investor. But activist investors also engage firms through behind-the-scenes actions, and gender bias is likely to be more salient when investors act in less public ways.

In effect, it seems that activist investors are seeing CEOs through the lens of gender stereotypes: They see female CEOs as being less effective than male CEOs, and thus they provide women more (unsolicited) direction for how to properly run the firm.

This gendered lens, which we believe affects how activist investors view the world, likely operates below conscious awareness, such that most investors are probably not aware of their own biases. When it is unclear why the firm is not performing as well as it could, gender stereotypes may become salient and influence how activists assess the CEO’s competence.

Activists and boards need to be aware that such biases exist and seek to counteract them. This matters because CEOs expend considerable time and effort dealing with activist investors. Consider the activism by investor Nelson Pletz against Indra Nooyi of Pepsico, which dragged on for about two years before they reached a truce in 2015. CEOs have to give detailed presentations about the strategy and direction of the firm, fight proxy battles for board seats, and hold intense meetings with various stakeholders to convince them that management is leading the firm well. Time spent dealing with activist investors means CEOs have less time to actually manage the firm. Thus activist investors may undermine the effectiveness of the CEO. And if female CEOs face more activist threats, their careers may suffer more.

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