The Gender Stereotypes Behind Investor Uprisings

It is no secret that the highest rungs of the corporate ladder are dominated by male chief executive officers. Nearly 90 per cent of Fortune 500 companies are led by men, and even when women do reach the C-Suite, they can’t escape the gender stereotypes that complicated their ascent in the first place.

It’s been shown, for example, that activist investors are more likely to target female CEOs with campaigns for change, and female CEOs are more likely than men to co-operate with them. But why?

Research by Blake Steenhoven, an assistant professor of accounting at Smith School of Business, and colleagues finds that the response of female CEOs to shareholder activism is perceived differently than the response of male CEOs. Women are viewed more favourably when they co-operate with activist demands and more negatively when they do not. For men, the opposite is true. 

Working with Scott Jackson (University of Nevada) and Kristina Rennekamp (Cornell University), Steenhoven designed a lab experiment that found investors expect stereotypical behaviour of both men and women.

Additional semi-structured interviews conducted with CEOs point toward some activist investors being aware of these gendered expectations and seeking to exploit them — of targeting woman-led firms precisely because of the pressures gender stereotypes place upon their leaders.

Why target female CEOs? 

Activist shareholders are partial owners of a company who seek to use their influence to advance changes in how the firm is run. These changes can be operational, such as a merger, acquisition or divestment. Activist investors sometimes seek to reduce executive compensation or appoint an ally to a firm’s board of directors. And increasingly, activist investors push companies to adopt environmental, social and governance (ESG) policies.

Female CEOs are more likely to be targeted by such campaigns, and more likely to co-operate with activist investors when targeted. A few theories have been suggested as to why female-led companies are targeted more frequently. The first is that struggling companies are more likely to hire a female CEO, perhaps because of a belief that a woman will be better able to manage the compromise and collaboration needed to get a firm back on track. 

The second theory is that female CEOs are inherently more co-operative than male CEOs because women are more co-operative than men. In this telling of the story, activist investors target female-led firms because they believe their activism will have a higher probability of success.

“Both of these explanations felt unsatisfying,” says Steenhoven. “They disregard some really important things. Above all, gender stereotypes are just stereotypes.”

While many people do conform to at least some gender stereotypes, they are not universal, he says. Research, for example, shows that female financial analysts have more stereotypically male characteristics than women in the general population — and even more stereotypically male than their male colleagues. “The idea that female CEOs must be more co-operative simply because of their gender just does not ring true,” says Steenhoven.

Activists driven by gender norms

For their study, the researchers created a scenario for prospective investors to evaluate. One hundred and twenty-eight MBA students played the role of independent investors and were asked to evaluate a fictional CEO’s response to a scenario in which a telecommunications firm is targeted by activist investors.

Some research participants were given a scenario in which the CEO was male, others were given a scenario in which the CEO was female. The rest of the scenario was the same. The students were then provided additional information about whether the CEO responded either co-operatively or confrontationally, and they were asked to evaluate the executive’s response. 

Steenhoven notes that when it comes to investor activism, there are advantages to conducting a lab experiment. Although investor activism is increasing, it’s still relatively rare. There are not many real-world cases to choose from, and the real world can be a messy, complicated place. There are always other factors people can point to as evidence that sexism was not the motivation for the investor activism campaign.  A lab experiment allowed Steenhoven to keep other variables constant and demonstrate that the male and female CEOs were being evaluated differently.

The results showed that both male and female executives experienced backlash when they behaved in ways inconsistent with gender stereotypes. When female CEOs were unco-operative, the prospective investors in the experiment evaluated their company as a less attractive investment. When male CEOs did co-operate, the evaluators perceived them as weak and less effective — and their company as a less attractive investment.

“It is clear evidence of gender bias because there is no other explanation for the difference,” says Steenhoven. “The findings are consistent with what we see in a lot of domains. Investors react negatively when a CEO violates gender norms.”

Female CEOs learn to play to the crowd

To contextualize the experimental findings, the researchers conducted semi-structured interviews with six CEOs and chief financial officers. One female CEO called the expectation of co-operation an “albatross around my neck my entire career.”

Such sentiments point toward an alternative explanation for why female CEOs are more likely to co-operate with the demands of activist investors. Instead of being inherently inclined to co-operate by virtue of their gender, Steenhoven says, female CEOs learn from experience in other domains that when they act in a way that is perceived as too assertive, they are evaluated more negatively.

“Female CEOs may be disinclined to co-operate and might want to fight back,” says Steenhoven. “But they need to make a calculated choice because they know they will be penalized if they do not act in a way that is consistent with gender norms.”

The way gender norms play out when activist investors target a company also hints at a more nefarious explanation for why female-led firms are targeted more often. Activists could be seeking out female-led companies precisely because they are aware that their CEOs will face repercussions if they do not co-operate. 

One female CEO interviewed for the study recounted an activist investor making veiled threats of taking their disagreement public if the CEO did not co-operate with the investor’s demands.

While female CEOs are clearly the ones most affected by gender stereotypes, male CEOs also recounted feeling pressures associated with gender norms.

“Male CEOs are less likely to be targeted by activists,” says Steenhoven. “But some male CEOs we interviewed did feel constrained by gender stereotypes. They felt pressure to be aggressive and hard-charging — to dig in their feet when approached by activist investors and fight back. That can be problematic too. Sometimes, the best choice is to co-operate with activist investors, and if your options are constrained by your gender, that’s going to be a problem.”