Campaigns by State Street, Vanguard and Blackrock led American corporations to add at least 2.5 times as many female directors in 2019 as they had in 2016, according to new academic research.
Authors Todd Gormley, Vishal Gupta, David Matsa, Sandra Mortal and Lukai Yang of the National Bureau Of Economic Research’s working paper 3065, which looked at the three asset managers who have $15 trillion under management and account for 75% of all indexed mutual fund and ETF assets.
The aim of the campaigns was to increase gender diversity on corporate boards.
“Our results highlight index investors’ ability to effectuate broad-based governance changes and the important impact of investor buy-in in increasing corporate-leadership diversity,” said the paper.
The researchers added there is a growing emphasis on diversity, equity, and inclusion in American society but women still only account for only 5% of public company CEOs and 18% of top executives, despite being 48% of the labor force and 40% of managers.
Panel A in the graph shows the average annual change in the number of female directors on US boards between 2014 and 2019 – reflecting the number of women added minus the number that departed from the board.
In the first half of the period US firms added 0.08 net female directors, which increased in 2017 and tripled by 2019. Panel B shows that the number of female directors on US boards grew by 50.2% between 2017 and 2019, increasing from 13.1% of directors in 2016 to 19.7% by 2019.
The paper said the increase in female directorships coincided with an influence campaign, conducted in public and private by prominent investors.
They aimed at increasing women’s representation on corporate boards. State Street launched its “Fearless Girl” campaign in March 2017, and Blackrock and Vanguard followed suit.
“Unlike earlier shareholder diversity campaigns that firms largely ignored, The Big Three adopted policies, which they enforced, of voting against directors’ reelection at firms they viewed as making insufficient progress toward a gender-diverse board,” added the paper.
The researchers said that the growth in female directors appears to be tied to the three asset managers’ campaigns and are not driven by other characteristics of the corporates. T
hey argued that the timing of the increase corresponds to the timing of each asset manager’s campaign and the increase in female directors was also greater among firms targeted by the individual asset managers’ campaigns.
For example, State Street focused on firms with no female directors, while BlackRock focused on firms with less than two female directors.
“The share of a firm’s equity held by State Street predicts increases in gender diversity starting in 2017 while the holdings of Vanguard and Blackrock, which started their campaigns later, begin predicting more female directors only in 2018,” added the paper.
In addition, shareholders voted overwhelmingly in support of these new women, awarding them even more votes than newly appointed male directors. The paper concluded that this investor support suggests that qualified female director candidates were available before campaigns but they were just not being chosen.
“Our results illustrate shareholder advocacy’s potential to expand women’s participation in corporate leadership more robustly than do government mandates,” said the researchers.
