Executive teams of large U.S. corporations are becoming increasingly partisan, resulting in “a political polarization of corporate America,” according to a new study from the National Bureau of Economic Research. This polarization has implications for the values of firms as well, the study found.
While workplace diversity in recent years has received a lot of attention, particularly in relation to gender and color, political diversity is clearly moving in the opposite direction.
Historically, the workplace has been more politically diverse, offering opportunity for cross-party relationships compared to other settings, such as the family, neighborhood, or voluntary organizations.
In contrast to previous studies, the new study argues that voter registration data, rather than political contributions, is more reliable for inferring political preferences of executives.
Partisanship is defined by the researchers as the extent to which a single political party dominates political views within the same executive team. And they found that over the years, C-suites of public U.S. firms are increasingly dominated by one political party.
“More specifically, our measure of partisanship is the probability that two randomly drawn executives are affiliated with the same political party. We find a 7.7-percentage-point increase in the partisanship of executive teams over our sample period,” they wrote in a paper.
The rise in partisanship is mostly a result of executives’ increasing tendency to associate with those who share their political beliefs, according to the authors.
Most Business Leaders Vote Republican
The study also found that the majority of executives lean Republican.“The average share of Democratic and Republican executives is 31.0% and 69.0%, respectively,” the paper stated.
The researchers discovered that the proportion of Republican executives climbed from 63 percent in 2008 to 68 percent in 2020, while the proportion of unaffiliated executives decreased. This, they feel, is another reason why the executive population has become more “politically homogenous.”
Additionally, partisan division among executives is growing across states.
“In other words, executives in Texas and Ohio are becoming more Republican, whereas executives in California and New York are becoming more Democratic.”
Only voter registration records from nine states, including California, Colorado, Illinois, Massachusetts, North Carolina, New Jersey, New York, Ohio, and Texas, were used to measure the political affiliation in the study. This is because many states limit access to voter registration data, the researchers noted.
Performance
Then, do shareholders benefit from the exit of CEOs who are politically misaligned?To help answer this question, researchers analyzed abnormal stock performances around the resignation announcements of the executives. They observed trends that strongly indicate that the exits of politically mismatched leaders are detrimental to firm value.
Voicing Political Opinions
The authors also raised the question of whether governments should be worried about political discrimination in the workplace.Traditionally, employment discrimination issues have centered on gender, ethnicity, sexual orientation, and age. In contrast, U.S. federal law and many state laws do not ban private firms from discriminating against employees based on political opinions.
One of the authors of the paper, Elisabeth Kempf, a faculty research fellow at the University of Chicago, said Democratic executives may have become more outspoken on progressive issues over the years.
She added that this is consistent with the notion that “maybe executives have become more outspoken on progressive issues or are more openly Democrat.”
Many businesses today don’t hold back when it comes to making public statements about current political events.