Various studies in recent years have shown that having more gender diversity on boards can improve corporate performance. Research from the University of Georgia suggests the same is likely for racial diversity.
The researchers examined the performance of around 5,000 CEOs who had been appointed between 2001 and 2020. They found that when a Black CEO was appointed, the average share price rose such that the median firm was able to see a boost of nearly $50 million in market capitalization.
Higher bar
“Our study suggests that Black CEOs face a higher bar for advancement than white CEOs as they climb the corporate ladder, resulting in Black CEOs being that much more prepared to lead the firm,” the authors suggest. “For example, the Black CEOs in our study had more years of education, a greater number of advanced degrees, and a higher likelihood of being educated at elite universities.”
The study found that firms with Black CEOs managed to achieve 3.1% higher returns than would otherwise be expected. Conversely, firms with white CEOs saw returns fall by -0.91%. The findings counter previous research that suggested that Black CEOs worsen company performance, which the researchers believe was based on flawed data.
“We’re glad to set the record straight. We believe the earlier study was flawed, and we were concerned that misreporting a decline in market value after Black CEOs’ appointments were announced might dissuade boards from hiring qualified individuals, thus worsening the under representation of Black corporate leaders,” they explain. “In the interest of transparency, we also make public the data underlying our results.”
They hope that their findings will prompt boards to be more open to hiring Black CEOs, and indeed Black leaders across the business. Indeed, they note that during the 20-year study period, just 57 CEO appointments were of Black leaders, which is a situation that desperately needs to change.
“Some might view our study as all positive news. It’s not. While it is encouraging that markets recognize the strong qualities of Black CEOs, our study also suggests that firms seemingly appoint Black CEOs only when they are excessively qualified. Thus, we likely have Black executives who would do quite well who simply are never given the chance to lead an organization,” the researchers conclude.
