Corporate America is geared to the pursuit of green, but it’s been leaning increasingly red or blue over the past decade. That development may be unwelcome news for shareholders, even if the political beliefs of company brass align with their own.
That’s according to a study released Monday suggesting corporate C-suites have become as politically polarized as other facets of American life — and that the trend may be creating negative financial fallout for shareholders.
The study comes just days after companies from Dick’s Sporting Goods
to JPMorgan Chase & Co.
pledged to cover workers’ travel costs to obtain abortions following the Supreme Court’s reversal of Roe v. Wade, the landmark decision that guaranteed abortion rights for the last half century.
The court’s ruling in Dobbs v. Jackson Women’s Health Organization drew sharp reaction on both sides, a reflection of an especially divisive issue in politically polarized times.
For the study, researchers from Boston College, Cornell University and the University of Chicago cross-checked voter registration records with Securities and Exchange Commission filings. They found that from 2008 to 2020, there was a 7.7 percentage point increase in average partisanship among executives at companies comprising the S&P 1500
The authors defined partisanship as “the degree to which a single party dominates political views within the same executive team.” They measured the partisanship of executive teams “as the probability that two randomly drawn executives from the same team are affiliated with the same political party.”
Executives clearly skewed Republican, the data showed. The share of GOP-affiliated executives went from 63% in 2008 at the start of the Obama administration to 75% at the start of the Trump administration to 68% in 2020.
The increased partisanship appears to be linked to like-minded people clustering in certain geographic areas, the authors said. For example, executives in places like Texas and Ohio are becoming more Republican while their counterparts in New York and California are becoming more Democratic, researchers said.
With partisanship growing more intense in the C-suite, members of the opposite political party may be eyeing the exit — and here’s where shareholders want to pay attention, the researchers noted.
Executives who were politically “misaligned” with their colleagues were more likely to leave a company during the period researchers analyzed, and their departures were followed by “substantially larger losses for shareholders, indicating greater political homogeneity in the executive suite is likely not in the interest of shareholders,” the researchers said.
That translated into $238 million in extra losses in the following three trading days, compared to departures of executives who were politically aligned with their fellow execs, the study noted.
The authors have some theories as to why the departures of “misaligned” execs created more substantial losses. There’s the stock-price fallout from the exiting executive, and then there’s a possible “negative signal about future personnel decisions,” they said. Either way, the researchers said, it’s possibly viewed as a “highly inefficient” way to handle a business’s top talent and their replacement.
Investors don’t necessarily know an executive’s politics, but they may have a sense that a departure isn’t planned and that it’s a potential force out, said Elisabeth Kempf, an associate professor of finance at the University of Chicago Booth School of Business, and one of the study authors.
“They just know this is a very valuable part of the team and they are kind of surprised to see them leave,” Kempf told MarketWatch.
“The increasingly partisan work environment has negative consequences for firm value, by leading to inefficient separations between executives and firms. This result implies shareholders of public U.S. firms should be concerned about the trend toward greater partisanship,” Kempf and her co-authors wrote.
To be sure, there are plenty of reasons to be worried about increased polarization.
What to do or say is especially fraught for companies in the wake of the Supreme Court’s abortion decision, coming amid a tight labor market and a need to retain customer base as recession worries continue.
Roughly six in 10 people (59%) said they disapproved of the Supreme Court overturning Roe v. Wade, according to a CBS News/YouGov survey. Previous polling ahead of the ruling shows majority public support for Roe.
That doesn’t necessarily translate to public approval of company stances on abortion access. Ahead of Friday’s ruling, roughly 53% of people in a different poll said they supported companies covering worker costs to travel over state lines for abortions.
But companies should avoid public stances, said the Suffolk University/USA Today poll. Two thirds of people, 67.5%, said corporations should not take a stand one way or another for or against abortion access.