Can Shareholder Activism Improve Gender Diversity on Corporate Boards?

Abstract

AbstractManuscript typeEmpiricalResearch question/issueWe empirically examine the antecedents of shareholder activism related to increasing the gender diversity of corporate boards of directors and whether such activism is an effective mechanism for achieving this goal. Because campaigns for increased gender diversity may be driven by either economic efficiency or social legitimacy concerns, we condition our analysis on activists' motivations for achieving their objectives.Research findings/insightsBased on a sample of US S&P 1500 firms over 1997–2011, we find that female board representation and board independence are negatively associated with the likelihood of being targeted by a shareholder proposal related to gender diversity. We further document that financially motivated activists are more likely to target firms with extremely low female board representation than are socially motivated activists. Targeted firms significantly increase their female board representation in the two‐year period following proposal initiation, relative to that of a matched sample of non‐targeted firms, with no significant differences observed across activist motivations.Theoretical/academic implicationsOur findings provide empirical support for the effectiveness of shareholder activism in shaping corporate governance. Our work also suggests that shareholder activists' underlying motivations are an important conditioning variable in governance research, with both agency theory and institutional theory providing insight into differing motivations.Practitioner/policy implicationsOur findings suggest that shareholder proposals are an effective mechanism for increasing board diversity, irrespective of activist motivations. However, we note that mean female board representation for both targeted and non‐targeted firms remains far below the level of representation sought by various activist groups. For policy‐makers, this suggests that legislative action may be necessary to achieve these corporate board diversity goals in the US.