Board Diversity and Shareholder Voting

66 Pages Posted: 18 Nov 2020 Last revised: 15 Dec 2020

See all articles by Ian D. Gow

Ian D. Gow

University of Melbourne; University of Melbourne - Department of Accounting and Business Information Systems

David F. Larcker

Stanford University - Graduate School of Business; European Corporate Governance Institute (ECGI); Stanford University - Arthur & Toni Rembe Rock Center for Corporate Governance

Edward M. Watts

Yale School of Management

Date Written: November 18, 2020

Abstract

The lack of board diversity is one of the most controversial topics in corporate board governance. We investigate one important influence on diversity by studying whether shareholders value diversity on corporate boards in director elections. Using a broad sample of director elections from 2003 through 2018, we provide robust evidence that shareholders value diversity. However, the magnitude of these effects is heavily dependent on the type of diversity. Our findings suggest that while both the race or ethnicity and gender of candidates are important factors in the shareholder voting process, shareholders have historically been more likely to support gender diverse candidates than racially or ethnically diverse candidates. We also provide evidence that shareholders place significantly more value on boards’ overall diversity rather than the diversity of individual candidates. Finally, the magnitude of the additional voting support for diverse candidates and boards has grown significantly over time, and there is considerable heterogeneity in voting behavior across shareholders along several important dimensions (e.g., the Big Three asset managers).

Keywords: Board of directors, Diversity, Shareholder voting, Environmental Social and Governance, ESG

JEL Classification: G30, G34, G23, M14

Suggested Citation

Gow, Ian D. and Larcker, David F. and Watts, Edward, Board Diversity and Shareholder Voting (November 18, 2020). Rock Center for Corporate Governance at Stanford University Working Paper No. 245, Stanford University Graduate School of Business Research Paper No. 3915, European Corporate Governance Institute – Finance Working Paper 716/2020, Available at SSRN: https://ssrn.com/abstract=3733054 or http://dx.doi.org/10.2139/ssrn.3733054

Ian D. Gow (Contact Author)

University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

University of Melbourne - Department of Accounting and Business Information Systems ( email )

Victoria
Melbourne, Victoria 3010 3010
Australia

David F. Larcker

Stanford University - Graduate School of Business ( email )

Graduate School of Business
518 Memorial Way
Stanford, CA 94305-5015
United States
650-725-6159 (Phone)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Stanford University - Arthur & Toni Rembe Rock Center for Corporate Governance ( email )

Crown Quadrangle 559 Nathan Ab
Stanford, CA 94305-8610
United States

Edward Watts

Yale School of Management ( email )

165 Whitney Ave
New Haven, CT 06511

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