Conservatives are going after corporations for peddling what they label as ”woke culture”. But in the C-suite, it’s Democrats who are losing ground.
The number of Republican executives has been increasing over the past decade, according to a new paper in the National Bureau of Economic Research. Of the roughly 4,000 executives the researchers studied, 69% were Republican and 31% were Democrat. Meanwhile, executive suites are also becoming less politically diverse, as polarization drives like-minded individuals cluster.
That polarization, the researchers found, is not only problematic politically, but is also bad for business.
The political cost of doing business
Researchers from Boston College, the University of Chicago, and Cornell University analyzed voter registration records for top executives of S&P 1500 firms between 2008 and 2020. They found that not only had C-suites become more homogeneous over time, but when an executive who held different political views left, share prices fell more sharply than after the departure of someone who shared the majority’s political views. The extra cost to shareholders: $238 million, according to the researchers calculations.
It’s unclear why these kinds of executive departures are more costly, but the finding opens up a new avenue for future research, said Elisabeth Kempf, associate professor of finance at the University of Chicago and one of the paper’s authors.
“It’s more and more the case that executives who don’t fit politically with other team members have a higher likelihood of leaving the firm,” Kempf said. “This trend towards more misaligned executive leaving has negative consequences for for shareholders of financial wealth.”
Companies also seem to be acting like voters do in a midterm election, when candidates who don’t belong to the president’s party tend to do better. From 2008 to 2016, when Barack Obama was president, companies hired more Republicans than Democrats. From 2016 to 2020, that trend was reversed (although, overall companies still hired more Republicans from 2008 to 2020). This may be in part because fewer Americans identified as Democrats between 2008 and 2016.
“The increase in the share of Republican executives was still surprising to us, because corporate executives are often perceived as having become more outspoken in favor of progressive issues,” Kempf said. “Our findings show that such changes in executive behavior are unlikely to be due to ideological shifts in the C-suite.”