Journal of Applied Corporate Finance最新文献

The underrepresentation of women in leadership positions in corporations, and in other organizations and institutions, is ubiquitous. While business leaders, investors and society in general advocate for greater gender equality at all firm levels, the reality differs: the fraction of female executives remains very low, despite the considerable growth in female representation on company boards over the last few decades. Figure 1 illustrates the low levels of female representation in companies that make up the S&P 1500 index, which consists roughly of the 1500 largest firms in the United States by stock market capitalization. Figure 1A shows that the proportion of firms with at least one female executive among the five highest-paid executives has risen from under 10% in 1992 to 65% by the end of 2023—a significant increase, yet still far below what would be expected if gender were represented proportionately among top executives.1 Likewise, the fraction of top five executives who are female has also increased substantially over time, but remains at only 17% at the end of 2023 (Figure 1B). Finally, as illustrated in Figure 1C, only 7% of S&P 1500 companies have a female CEO.

Why are there so few women in top leadership positions? One possible explanation is that the supply of qualified women is limited. Another is that conscious or unconscious biases lead to female candidates being overlooked for top roles. Of course, these two explanations could both be true, and work to reinforce one another: if female candidates are systematically passed over for top leadership positions, fewer women will pursue such opportunities, thereby further restricting future supply.

We contend that the absence or underrepresentation of women in leadership positions within some firms stems partly from a corporate culture that tolerates (and may even foster) sexism, preventing women from rising to the top—a phenomenon widely known as the “glass ceiling.” The renowned economist Marianne Bertrand (2018) has identified many factors that help explain the glass ceiling, but she highlights that there is an unexplained residual and that “sexism should be high on the list to name that residual” (p. 228).2 This notion is further supported by survey evidence. For example, analysis by the Rockefeller Foundation and Global Strategy Group (2017) indicates that the culture of the corporation itself, and particularly the so-called “boys club” attitude in the workplace, is one of the main hurdles preventing women from achieving top leadership positions.3 Research has also shown that having a woman in the firm's C-suite improves equality in the organization by narrowing the gender pay gap (Tate and Yang (2015), Kunze and Miller (2017), and Dong (2022)).4 Similarly, a World Economic Forum (2017) study on attitudes towards women in the workplace emphasizes the pivotal role of female leadership in building a culture of gender equality.5 In fact, it concludes that the key

Agency costs of stakeholderism are the costs arising from the additional conflicts of interest that emerge when moving from shareholder primacy to stakeholder primacy.

In the opening passage of the Spring 2024 edition of this journal, the editors articulated the advantage of focusing on sustainability, as opposed to the more widely used ESG. Noting a major concern, McCormack (2024, p. 2) explained that ESG represents “a wide variety of open-ended disputes that are often more social and political than economic in nature, and so subject to major confusion.” We agree and endeavor to reduce some of that confusion. In our paper, we recognize McCormack's concern and approach this important issue from an economic perspective (rather than a political or social perspective) by evoking agency theory, one of the most powerful instruments in the financial economist's toolkit.

Agency theory involves the economic analysis of conflicts of interest. Another article from the 2024 Spring issue identified the important role of conflicts of interest in terms of understanding ESG. Specifically, in the Epilogue to his new book, Chew (2024, p. 28) notes that “conflicts between shareholders and stakeholders—and among different stakeholder groups themselves—are everywhere.” In another article from the Spring 2024 issue, Denis (2024) further contends that agency costs stemming from the paradigm shift from shareholder to stakeholder primacy may outweigh the benefits of stakeholder-centric endeavors (such as CSR). Therefore, from that Spring 2024 issue, we can conclude that conflicts of interest involving stakeholders are pervasive and potentially very large. In this paper, we seek to build upon these important insights. First, we formally define the agency costs of stakeholderism and then we identify specific examples of how these costs may arise and how these costs may affect firm value.

Our paper considers the agency costs of stakeholderism in compensation contracts. Harkening back to the days of Friedman (1970) and Jensen and Meckling (1976), financial economists have long suggested that firms design management compensation contracts to minimize agency costs and maximize shareholder value. The seminal study by Jensen and Meckling (1976) provided an initial taxonomy of agency costs. Specifically, Jensen and Meckling (1976) identified agency costs of equity and agency costs of debt and presented examples of each.

Applying this theory, previous studies of compensation structure, summarized by Yermack (1995) and Bryan, Hwang, and Lilien (2000), primarily focus on the agency costs of equity and emphasize the role of equity-based executive compensation in managing this conflict of interest by establishing a more direct link between manager and shareholder wealth. Further drawing upon this theory, John and John (1993) and