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Study: When companies hire Black CEOs, their stock jumps

Researchers say it’s because they’re ‘not playing on a level playing field’ and are overqualified by the time they reach the top

Rosalind Brewer is CEO of Walgreens Boots Alliance. (Riccardo Savi for the Aspen Institute)

Researchers reviewing thousands of CEO appointments over the past two decades have found significant short-term upsides to the appointment of Black leaders, according to a new study. But the findings don’t signal the elimination of barriers to their ascent of the corporate ladder.

Market reactions to appointments of Black CEOs are more positive than for White CEOs, according to the study published in the Strategic Management Journal. Researchers reviewing CEO appointments from 2001 to 2020 found that a median-size firm appointing a Black chief executive saw an extra short-term bump of 3.1 percent to their market capitalization three days following the announcement. Firms that appointed White CEOs saw their market capitalization decline 0.91 percent in the same window by comparison.

The boost is a reflection of investor ease with Black executives whose credentials often surpass their White peers, according to Seung-Hwan Jeong of the University of Georgia and Ann Mooney Murphy of the Stevens Institute of Technology, two of the researchers behind the study.

“To be considered for appointment as CEO, a Black executive would have to repeatedly prove themselves over the course of their careers in ways White CEOs do not,” the researchers wrote. “As a result, newly appointed Black CEOs are likely to exhibit exceptional attributes relative to their White counterparts.”

Ninety-three percent of Black CEOs in the study had advanced degrees, compared to 53 percent of White executives, the researchers found. On average, Black executives had 1.6 more years of education than White executives, and were also more likely to have an “elite degree” from a top university.

The striking race gap in corporate America

“While it is encouraging that markets recognize the strong qualities of Black CEOs, our study also suggests that firms seemingly appoint Black CEOs only when they are excessively qualified,” Jeong said. “We likely have Black executives who would do quite well who simply are never given the chance to lead an organization.”

Black Americans make up more than 12 percent of the country’s population, according to 2021 data from the Bureau of Labor Statistics, but make up less than 6 percent of the country’s chief executives.

This year, the Fortune 500 recorded six Black CEOs, barely more than 1 percent. Among these leaders are Rosalind Brewer of Walgreens Boots Alliance, Marvin Ellison of Lowe’s, Thasunda Brown Duckett of the Teachers Insurance and Annuity Association of America-College Retirement Equities Fund, and Robert Reffkin of Compass.

While Black employees in corporate America often “outperform and overperform” their White colleagues, they suffer from the lack of sponsorship from senior leaders that is critical in climbing the corporate ladder, according to Ayana Parsons, a senior partner at Korn Ferry who specializes in board and CEO inclusion. Often they are judged on “performance, not potential.”

“I think you have folks that are very talented but never reach the CEO’s seat because it feels impossible to get there when you have all the head winds,” Parsons said, citing the stereotyping, bias and social exclusion Black leaders frequently face.

Companies and boards can’t hire their way out of this issue, Parsons said. Instead they should focus on creating a pipeline that ensures Black employees have the internal support and opportunities to progress their careers years before they might be ready for a top job.

“The only way for us to get more Black CEOs in corporate America is to develop them,” Parsons said.

Corporate America’s $50 billion promise

At first, Jeong and Murphy were surprised by their findings. But when they considered the ways in which Black leaders are facing “a higher bar” to reach those positions, it made sense, they said.

“It’s not just the challenge of getting into the CEO job,” Murphy said. “It’s all of the challenges along the way.”

The researchers said they are hopeful their findings can encourage more boards and investors to feel confident appointing Black CEOs.

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