Saturday, August 26, 2017
As Anne Tucker pointed out, there was a flurry of news items a couple of years ago suggesting that hedge fund activists were more likely to target female CEOs over male CEOs.
Well, someone’s now done a systematic study of the issue and confirmed – yes! That is a thing that happens!
In their paper, Do Activist Hedge Funds Target Female CEOs? The Role of CEO Gender in Hedge Fund Activism, authors Bill Francis, Victor Shen, and Qiang Wu control for a variety of firm characteristics, including the “glass cliff” (that women are more likely to be elevated to CEO in times of turbulence), and still find that the presence of a woman CEO makes it more likely that a company will be targeted by activists. They attribute the difference to a couple of things. First, they find that women CEOs respond differently to activist attacks: instead of going into a defensive posture, they are more likely to cooperate. As a result, activists seek cooperative measures like board seats, and settle without proxy fights. The more cooperative posture of women CEOs makes it easier – and thus more profitable – for activists to target them. This finding, they conclude, is consistent with other findings that the market does not respond as positively to activist intervention when the firm uses aggressive defensive tactics, unless the activist further increases the hostilities with even more expensive and aggressive interventions.
The study’s authors reject the notion that pure sexism is at work, because (they find) the market responds to activism at women-led companies with larger abnormal returns both in the short term and over the course of a year. According to the authors, it is implausible that the market, as well as the activists, would be misled by pure gender bias for such a prolonged period.
On this point, I’m a little more skeptical. For one thing, if I’m reading this correctly, their long-term findings of higher abnormal returns for women-led companies are less consistent across different specifications than the short-term findings. Plus, I think it’s entirely plausible that even if the activists themselves are not “motivated” in some subjective sense by gender bias, they suspect that the other investors on whose cooperation they rely may be less trustful of women CEOs. So they know that if they target those companies, other investors will respond more positively. Indeed, the authors find that activists take smaller positions in women-led companies than men-led ones, suggesting that the activists anticipate more cooperation from the existing shareholder base.
That said, I certainly find it plausible that part of activists’ motivation stems from differential responses of men and women CEOs, so there’s a great irony in the fact that women CEO responses end up adding value to the company, yet at the same time – as the study’s authors find – women end up suffering more for it, with a greater loss in compensation and higher turnover than men CEOs who find themselves targeted, even though women begin with less compensation than their men counterparts.
In addition to having interesting implications on its own terms, this study I think can be viewed as part of a larger emerging literature on the problem of customer or end-user discrimination. As Kate Bartlett and Mitu Gulati discuss in their essay on the subject, we have a variety of laws that prevent, say, employers from discriminating against employees, and businesses from discriminating against customers, but we don’t have laws that work in the opposite direction. For the most part, buyers/customers can discriminate with impunity (with limited exceptions, like programs funded by the federal government) – which in practice means that we have real discrimination problems in the gig economy. Airbnb, for example, has been trying to address discrimination by homeowners who will not rent to people of color, and people of color who sell products on eBay may receive less than white sellers (.pdf). One article reports that women gig economy workers are used to experiencing harassment by customers, and – because they are considered to be independent contractors – don’t view themselves as having many options. Of course, this is not just a gig economy phenomenon; among other things, medical patients may not want to be treated by nonwhite doctors (here is an extreme example).
And recently, there have been a spate of articles about discrimination by venture capitalists, who are much less likely to fund women-led startups and, apparently, have engaged in a pattern of serious sexual harassment against women entrepreneurs. Activists who target women CEOs seem to be another data point.
The reality may be that there are forms of discrimination that the law can’t reach, but as the Bartlett and Gulati article concludes, we might start to seriously think about areas where legal intervention could be a practical, if partial, solution.