Boardroom Racial Diversity: Evidence from the Black Lives Matter Protests

Abstract

This paper provides evidence that the Black Lives Matter (BLM) protests that followed the killing of George Floyd on May 25, 2020 brought immediate changes to the US corporate boards. Using a sample of S&P 500 index companies, we find that companies with higher representation of black directors are associated with higher stock returns during the mass BLM protests. Before the BLM protests, black directors held on average 8.2 percent of the board seats, with each black director holding on average 1.34 board seats, which is significantly higher than for directors of other ethnic origins. Within one year after the BLM protests, 10.7 percent of the sample firms hired at least one black director (compared to having no black representation on the board before the protests), and 31 percent of the newly appointed directors were black. We find that companies typically add new diverse directors by increasing the board size, but there is no evidence of negative value effect or decreasing director quality. The finding that racial diversity can be increased at an unprecedented speed without a loss in value is consistent with the view that a boost in boardroom diversity is possible under strong multichannel pressure from investors, consumers, employees, and regulators.

Keywords: Boardroom diversity, corporate governance, mass protests, Environmental, Social and Governance (ESG)

JEL Classification: G12, G14, G30