Who Loses When Activist Hedge Funds Shake Up Companies?

Women, according to a paper from UNC Charlotte and Renmin University of China.

(John Taggart/Bloomberg)

(John Taggart/Bloomberg)

When hedge funds agitate for change at companies, women wind up with less representation on boards, according to research from the University of North Carolina at Charlotte and Renmin University of China.

“Hedge fund activists are more likely to appoint male directors to the boards of target firms,” UNC Charlotte’s Yongqiang Chu and Renmin’s Daxuan Zhao said in a recent paper. The researchers studied about 900 events involving hedge fund activism from 2004 to 2014, and found the campaigns led to 90 fewer female directors.

The finance industry’s lack of gender diversity may be spilling over to companies targeted by hedge fund firms, according to the paper. Hedge fund managers — who tend to appoint people with finance backgrounds to the boards of companies they aim to shake up — are likely using their male-dominated networks to search for candidates, the researchers suggested.

“The hedge fund industry itself is notorious for its lack of diversity,” they said.

In the sample they studied, the average number of women serving on boards was less than one — and more than a quarter of the companies had no female directors. The women who filled board seats tended to be younger and less likely to hold executive positions or have a background in finance, according to the researchers, who used employment history data from BoardEx.


The research comes as institutional investors are becoming more vocal in their push for gender diversity.

For example, BlackRock updated its proxy voting guidelines in 2018 to state the asset manager would normally expect to see at least two women on every board, the researchers said. They also pointed to activist hedge fund firm Elliot Management Corp., which nominated two women to Commvault Systems’ board that same year.

In a 2018 announcement disclosing its stake in Commvault, Elliott noted the lack of diversity on the software company’s board, saying it’s “an area that has become an increasing focus among the largest investment institutions in their efforts to improve corporate governance.”

Earlier this year, Kathryn Koch, co-head of the fundamental equity business at Goldman Sachs Group’s asset management unit, told Institutional investor that her team seeks to invest in businesses with strong cultures that include gender diversity. That gives companies a competitive edge, which for GSAM, translates into alpha.

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The researchers from UNC Charlotte and Renmin also examined the gender compensation gap.

Female directors made less than one third of what men were paid in the sample they studied. The average woman serving as a company director was compensated $129,829, compared to $426,610 for men, according to the researchers.

“The difference in compensation between female and male directors is striking,” they said.