Board Diversity and Shareholder Voting

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