While more and more institutional holders and asset managers are noisily promoting board diversity among their portfolio companies (see this PubCo post)—including, most recently, the NYC Comptroller and the NYC pension funds (see this PubCo post)—hedge fund activists (fka corporate raiders, now styling themselves as “activists”), seem to take quite a different tack. Two recent studies have looked at the impact of hedge fund activism on diversity from different perspectives: one study showed that hedge fund activists have an adverse effect on board diversity at companies they attack and another study showed that female CEOs are significantly more likely than male CEOs to come under threat from hedge fund activists.

As discussed in this Bloomberg BNA article, a study by ISS examined companies in the S&P 1500 that were targeted by hedge fund activists between 2011 and 2015, amounting to 93 companies involving 380 board seats. Of directors nominated by dissidents and by the boards themselves in response to activism, 8.4% of this group were women and less than 5% were racial or ethnic minorities. By comparison, in 2015, 25% of new directors at all companies in the S&P 1500 were women and 13% were minorities. Similarly, at companies targeted by hedge-fund activists, the proportion of all-male boards also increased from 13% to 17%, while, for companies in the S&P 1500 generally during the period, the proportion of all-male boards declined by 13 percentage points. Similarly, fewer boards had at least one minority director, with the percentage declining from 56% to 52%, while about 57% of companies in the S&P 1500 had a least one minority director on the board.

Equally disheartening, a separate Bloomberg News analysis of S&P 500 companies over the same period showed that, of 174 board seats sought by five of the biggest U.S. activist funds, women were nominated only seven times. Of 108 seats won, five women succeeded in winning. At that rate, the general data makes the boards of companies in the S&P 500 look like they were selected by the National Organization for Women: over the same period, women were nominated to fill about 26% of open seats at S&P 500 companies, according to Spencer Stuart Inc., and about 19% of directors at S&P 500 companies are women. (See this PubCo post.)

In this academic study, the authors examined whether CEO gender is related to the incidence of threats from activist investors. The authors looked at 13D filings and other data, finding that, “[g]iven that the unconditional probability of a firm being threatened by an activist investor is 7% in our sample, the marginal probability of a woman CEO being targeted by an activist investor is substantial (i.e., almost 50% higher than the unconditional probability).” The study concluded “that women CEOs face greater threat from activist investors than male CEOs.” Why might that be the case? One theory posited is “that activists may be ‘singling out’ women CEOs because of ‘subconscious perceptions and cultural attitudes’ shaping decisions about which firms to target.” The authors contend that their study provides “theoretical grounding” and “robust and rigorous evidence” in support of that theory. In particular, the authors suggest that the behavior of these hedge fund activists might be explained by the “role incongruity theory,” that is, a “bias against women leaders” that “stems in part from dissimilar beliefs about attributes of leaders and women versus similar beliefs about attributes of leaders and men (‘think leader-think male’ syndrome; Eagly & Karau, 2002).”