[ad_1]
According to a recent paper, “The Political Polarization of Corporate America,” by Elisabeth Kempf, an associate professor of business administration at Harvard Business School, nearly 70 percent of America’s top executives are affiliated with the Republican Party and 31 percent with the Democrats. Foss of Boston College, and Margarita Tussura of Cornell University. The Gazette recently spoke with Kempf about why so many executives support the GOP and the potential dangers of growing partisanship at the top of corporate America. The interview has been edited for length and clarity.
Newspaper: Can you talk a little bit about how you measure partisan turnover among top executives in American companies?
KEMPF: We began by collecting data on the five highest-paid executives at US S&P 1500 companies. These are large, publicly traded U.S. companies that must report the names of their five highest-earning executives to the Securities and Exchange Commission. Then we had to figure out who was a Democrat, who was a Republican, and who was an independent, and to find that out, we matched these executives to the voter registration records of nine different US states. Thus, we were able to see the political composition of the executive team.
In the paper, we define partisanship as the degree to which political views within a group are dominated by one political party. We measure the probability that two executives from the same group are in the same party. We have seen that the measure of partisanship has increased somewhat over time. We’re looking at 2008 to 2020, and it’s increased by 7.7 percent over that period, which is a big change.
Newspaper: How does this increase in partisanship among American executives compare to the rest of the American public?
KEMPF: In one part of the paper, we simulated what would happen if executives only followed local populations or local registered voters. We have seen that the trend towards homogeneity is twice as high among executives as compared to the general population. This was something we didn’t necessarily expect because we’re talking about very highly skilled people at the top of the organization, and an executive who doesn’t do anything can factor into the decision to hire or retain. along with their political positions. It was surprising to see these trends so strong among senior executives, especially since there has been a strong push for more diversity within the system and the executive suite over the past couple of years. We see that they were more diverse, for example, regarding the role of women, but we still do not see more diversity in political views.
Newspaper: Your paper says that 69 percent of US executives are Republicans and 31 percent are Democrats. How and when did the transition take place?
KEMPF: Voter registration information limits how far back we can go. We can only see 2008 and beyond. Alma Cohen, a professor at Harvard Law School, and colleagues have looked at CEOs and their political contributions, who have been donating primarily to the Republican Party for some time (at least since 2000). It’s not that surprising that CEOs lean Republican or contribute heavily to the Republican Party. What’s surprising is that there hasn’t been a strong shift toward more Democratic executives, despite what many observers expected. You may have heard of “wake capitalism,” and many companies are speaking out in support of progressive causes, but we’re not seeing a strong shift in the number of executives leaning toward the Democrat Party. In fact, in our sample period, the share of Republican executives increased from 63 percent in 2008 to 71 percent in 2018. There doesn’t necessarily seem to be an ideological shift in the executive suite, and their public statements may have more to do with how they might be perceived by their customers, employees, or investors than their own political ideology.
Newspaper: Can you say this era is more right than the “Mad Men” years, with years of Republican executives on the rise?
KEMPF: I would love to have information on that. Even if we review the data on political contributions, they can go back as far as the late 1970s. It’s hard to compare it to the 1950s and 1960s, but I think it’s interesting to know how similar or different it was back then.
Newspaper: How does political polarization manifest itself in the upper echelons of corporate America?
KEMPF: In our paper we have used the terms “political polarization” and “increasing partisanship of executive groups” interchangeably. We mean that there are many groups dominated by one political party. Basically, there is a huge political divide among the top executives. We see this in other parts of American society as well. For example, political scientists have looked at the political alignment within the family and found that there is a lot of political division within the family. There are other forms of political polarization, but political polarization is one of many aspects of political polarization.
What we found is that there is a greater separation between Democratic and Republican companies than before. Our measurement of the degree to which one party dominates speaks directly to this trend. With team members, we have another yardstick by which to see if a politically incorrect executive is likely to leave the company. This measure has also increased in the last two years. Post-2015, you will see politically incorrect executives leaving their teams at higher prices. All of this speaks to the same phenomenon, which means we see a lot of political talk in US companies.
Newspaper: Does the corporate divide reflect the political geography of red and blue states?
KEMPF: After documenting in our paper the tendency of executive teams to become highly partisan, we want to know where the dominance of a single party by a particular executive team comes from. To understand this trend, it is important to understand the political divide in geography. What seems to be happening is that the executive teams in California and New York are becoming more Democratic, and at the same time, the executive teams in Texas and Ohio are becoming more Republican. The most important thing is the geographical location, which explains a large part of the phenomenon.
Newspaper: Does the growing partisanship among America’s top executives pose any risks or dangers to shareholders and stakeholders?
KEMPF: In our current article, we are looking at the implications for shareholders, but I hope that more research will be done on stakeholders, employees, capital providers, local communities, etc. Consequences for shareholders because it is unclear whether shareholders prefer a more politically homogeneous or a less politically homogeneous group.
On the one hand, they argue that if we have more homogeneous teams, maybe the executives in the teams communicate better and have less disagreements and can get things done. On the other hand, when you have only one type of political ideology, you can lose valuable perspectives that can improve decision-making, and one could argue that the trend toward political homogeneity is a bad thing.
In this theoretical ambiguity, we looked at the stock price response when executives leave the firm and found that when the wrong executive leaves, i.e. executives who bring diversity to the group, this is particularly destructive to firm value. We’ve seen companies lose an average of $238 million more on departures than executives who joined the team and contributed to greater homogeneity. That suggests that investors don’t seem to see the departure of errant executives as a good thing, but rather a very destructive one for firm value. This approach, at least, does not appear to be based on the financial interests of shareholders.
Newspaper: What other questions should researchers examine to understand the consequences of political polarization in American corporations?
KEMPF: Our hope is that more research will be done on the issue of political diversity. I think an important question is to what extent will we see similar trends in other workplaces? We focus on the top-level decision makers and five top-earning executives because they make important decisions and we have data on them. But I think it would be interesting to see how much this happens in other workplaces.
Another big question is what exactly has changed in recent years that has accelerated this trend? Was there some pressure on companies to take a stand on political issues? Does it mean that political issues are being discussed at work? We know that these conflicts arise more frequently than ever before, but we also know that even on issues that aren’t directly related to politics, like the economy, inflation, and the pandemic, your views are shaped by our political views. . On top of that, there’s plenty of survey evidence to show why topics that aren’t political, but still important to business decisions, have become more controversial along partisan lines. I think this would be a fascinating question to explore.
[ad_2]
Source link
