“We think that the low representation of Black CEOs in corporate America today is just shocking,” Ann Mooney Murphy, an associate professor at the Stevens Institute of Technology School of Business, told me.
Murphy is a co-author of the recent study from Stevens Institute and the University of Georgia, “How do investors really react to the appointment of Black CEOs?” published in the Strategic Management Journal. According to the study findings, the stock value of an S&P 1500 firm increases when it announces the appointment of a Black CEO.
I had a call with Murphy, a former CPA, on Tuesday while she’s in London this week attending the annual Strategic Management Society conference to present the research. When asked why she and her peers decided to conduct this study, Murphy pointed to the underrepresentation of Black CEOs at Fortune 500 companies—there are currently six. And progress in this area is at a slow pace, she said. For example, Ursula Burns, the former CEO of Xerox (from 2009 to 2016), was the first Black woman to run a Fortune 500 company. When Burns left Xerox at the end of 2016, it would take five years for another Black woman to be at the helm of a Fortune 500 company—CEO of Walgreens Roz Brewer.
“We decided that we wanted to understand this better,” Murphy explains. “There's lots of evidence through other studies that Black leaders experience a significant amount of bias in corporate America. So, going into the study, we wondered if there would be a bias that would be present with investors.”
Murphy says that the researchers worked on the study for more than three years. To compile the data, they searched for media announcements of CEO hires using LexisNexis, Execucomp, ISS, and Gentry. Based on the study's parameters, the data set used consisted of nearly 5,000 CEO appointments at S&P 1500 companies over 20 years (2001-2020), and 57 were Black CEOs. They then used Eventus for the market analysis, Murphy says.
The analytical tests showed the average cumulative abnormal return—a firm’s returns beyond expected normal market returns—was +3.1%, on average, to firms appointing Black CEOs, she says. Those returns were higher than the -.91%, on average, reaction found for a comparison sample of white CEOs, Murphy says.
An example? When Marvin Ellison was appointed the CEO of Lowe's in 2018, the company saw a 9.6% increase (cumulative abnormal returns), Murphy says.
The +3.1% average noted in the study pertains to a three-day window from when the company announced to the press the new CEO “because that's when the markets would most likely react,” Murphy says. “Event analyses like these do not look at long-term effects," she says. "They look at short-term effects.”
The research findings are contrary to a 2021 paper, also published in the Strategic Management Journal, which claims investors respond more negatively to the announcement of Black CEO appointments than to white CEO appointments, Murphy says. The research data behind that study is not public, she says.
“Since making our data public, no one has contested our findings,” she says. “Our study also went through a very rigorous, blind peer review process and the like.”
The bar is higher
There’s another significant finding of the research Murphy conducted with her peers, she says.
“What we actually found was, almost because of the bias that they’ve experienced, there’s evidence that there is a significantly higher bar for advancement for Black CEOs compared to white CEOs,” Murphy says. She says the report also found Black CEOs have a greater number of advanced degrees and a higher likelihood of being educated at elite universities. “By the time a [Black executive] gets to the CEO office, they've time after time had to prove themselves,” Murphy says. “So, when they reach that highest point, they are extraordinary.”
The researchers believe these findings point to why stock values increased when firms announced the appointment of a Black CEO. A high-profile executive who then becomes one of the few Black CEOs of the Fortune 500, for example, means “you're probably pretty extraordinary, and the markets appreciate that,” Murphy says. “Investors should be rational, right? Because it's all about making money. They want to get returns. They don't have, in all likelihood, personal relationships with these [CEOs]. They're gonna put their money where they think it will be managed well.”
I asked Murphy what she and her fellow researchers hope to accomplish. They want the study to prompt boards and C-suite leaders to work to level the playing field for Black professionals to reach the chief executive role, she says.
See you tomorrow.
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