Elisabeth Kempf Says to Beware of Polarization in Your Office
Professional contexts aren't immune to partisan fragmentation.
Elisabeth Kempf Says to Beware of Polarization in Your OfficePolarization has, over the past several decades, increasingly driven Americans into ideological camps. A string of research projects has established that people are more likely to live with and among people who share their views, and to spend free time with them.
“The workplace is one of the few remaining settings where individuals still regularly interact with others who do not necessarily share their own political views,” write Boston College’s Vyacheslav Fos, Chicago Booth’s Elisabeth Kempf, and Cornell’s Margarita Tsoutsoura—and yet they present evidence that the ideological divide is also growing in the business world, with top executives increasingly clustering with each other on the basis of political party. Not only that, political events are shaping how those executives sell their own stocks and make capital investments for their companies.
The researchers used Execucomp data to identify the five most highly paid executives of S&P 1500 companies and match them with voting records from 2008 to 2018. This enabled them to measure how often two randomly chosen executives from a company were affiliated with the same political party.
The analysis focused on executives registered as either Democrat or Republican. Between 2008 and 2018, the likelihood that two randomly chosen executives shared a political party increased by 5 percentage points. By contrast, over the same time period, the probability that two executives had the same gender decreased by 4 percentage points. The increase in political homogeneity mostly took place after major political events—such as the passage of the Affordable Care Act in 2010 and the presidential elections of 2012 and 2016.
The researchers also conducted simulations, randomly assigning executives to party affiliations matching the share of Republicans and Democrats each year and running 1,000 polarization scenarios. Real-life executive teams exhibited far more polarization than almost all the simulations did. Fos, Kempf, and Tsoutsoura estimate that 80 percent of the extra polarization was driven by increased sorting of executives into businesses that aligned with their own political ideologies.
Professional contexts aren't immune to partisan fragmentation.
Elisabeth Kempf Says to Beware of Polarization in Your OfficeCultural and political divisions have persisted for decades. Now there’s a growing gap in how Americans see each other.
Could Anything Unite the United States?Politics also colored the decisions executives made, according to data from Thomson Reuters, which collects insider filings. The researchers compared the months before and after the election of Republican president Donald Trump in 2016 and find that after his victory, Republican executives were far less likely to sell their company stocks than Democrats. On average, in the period leading up to the election, 22 percent of executives sold some of their company stock in a given month. After the election, they were 14 percentage points less likely to do so, signaling their expectation that a president politically aligned with them would be good for their companies’ prospects.
Finally, the researchers examined capital outlays. They looked at executive teams that were at least 40 percent Republican, teams at least 40 percent Democrat, and teams that didn’t reach 40 percent of any party affiliation. Companies dominated by Republican executives increased capital spending more than Democratic-led and neutral companies in 2016, the year Trump won election after 8 years of Democratic president Barack Obama.
The findings are particularly significant in an era when many companies maintain that they strive for diversity among employees, argue Fos, Kempf, and Tsoutsoura.
“The increase in the political homogeneity of executive teams is even more remarkable in light of the decreasing homogeneity along the gender and race dimensions, which should, if anything, lead to greater diversity in political views,” they write.
Vyacheslav Fos, Elisabeth Kempf, and Margarita Tsoutsoura, “The Political Polarization of US Firms,” Working paper, February 2021.
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