It is not just your imagination: activist hedge funds do go after companies led by woman chief executives more often.
That is a fact, borne out by new research. But the underlying causes are less clear, although female CEOs look as if perhaps they do a better job representing their investors in activist campaigns.
Also true: female CEOs whose companies are targeted by activist hedge funds themselves do worse out of the deal. They lose more in total compensation and are more likely to be replaced than their male peers, found Bill Francis and Qiang Wu of the Rensselaer Polytechnic Institute and Yinjie Shen of Cleveland State University.
Activist hedge funds, which take stakes in companies and then push them to adopt new strategies or even new management, have become a major force in financial markets, controlling more than US$120 billion and launching two-thirds more major campaigns against companies with large market caps in the first half of this year compared with the same period last year.
A notable number of activists have taken after female-led companies, such as Carl Icahn’s 2015 stake in then-CEO Ursala Burns’ Xerox or Nelson Peltz’s run at Indra Nooyi’s PepsiCo.
The data backs up the impression formed by anecdote.
“Using a comprehensive dataset, we first confirm that activist hedge funds indeed regard female CEOs as preferred targets,” the study's authors write.
In a given year, a female chief executive has a 5.7 per cent chance of her company being targeted by activists, 54 per cent higher than the 3.7 per cent incidence for male CEOs, the data shows. The study, which covered 2003 to 2014, examined more than 2,000 hedge fund activist events.
As of now, just over 5.2 per cent of Fortune 500 company CEOs are woman.
The raw numbers actually understate the extent to which female CEOs face activist campaigns. An exercise matching female CEOs to male ones with similar work and company characteristics found they were actually 78 per cent more likely to face an activist campaign on an apples-to-apples comparison.
Note that 99 per cent of activist hedge fund managers are men. A 2016 story in Fortune Magazine identified Dianne McKeever of Ides Capital as the only female running an activist shop.
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One sometimes-mooted theory is that woman CEOs are more likely to be lumbered with the kinds of companies that attract activist hedge funds; those undergoing a difficult executive transition, either due to change in the marketplace or at the specific company. This idea is sometimes called “the glass cliff” - an echo of the “glass ceiling” that is said to block female C-suite advancement.
To look at this, the study examined firms that have had a male-to-female CEO transition, compared with male-to-male ones, further matching by firm characteristics. Even doing this and controlling for firm characteristics, woman CEOs were still more likely to find themselves in activists’ crosshairs.
One thing the study did find was that firms led by woman showed a larger increase in operational performance and a bigger short-term stock market boost when news of the activist campaign breaks. The authors say this discounts pure gender discrimination by hedge fund managers.
Perhaps, but it certainly does not discount bias by the investors buying and selling shares in the woman-led companies involved.
What does seem to be true is that female CEOs take a more constructive and mature (and less self-dealing) approach to activist negotiations. This point is very much in their favour as stewards of capital, but perhaps makes them more attractive targets for outsiders.
“We find that, instead of maintaining a defensive posture, female CEOs are more likely to communicate and cooperate with activist hedge funds. Specifically, when hedge fund activists target female CEOs, they are less likely to resort to hostile tactics, are more likely to obtain board seats, seek reimbursement, use letters to communicate with managers, settle before proxy fights and, ultimately, are more likely to be successful at achieving all or part of their goals,” according to the study.
Female CEOs also hold more board meetings and are less prone to adopt “poison pill” tactics to foil outside activists.
That all sounds like good management.
Remember, activists very often have clever ideas for improving share price performance, though their record of creating lasting value is less clear. While activists can have good or bad ideas, what they almost always represent is a possible threat to the personal fortunes of the chief executives involved.
Female CEOs do worse, personally, out of activist events than their male peers, suffering larger falls in pay, facing more pay-for-performance targets and getting shown the door more often.
All of this makes the low number of female CEOs look not just unfair, but bad news for the investors those executives serve.
James Saft is a Reuters columnist. The opinions expressed are his own
