Executive Teams Are Becoming More Polarized

Narrator: Heightened polarization has driven Americans into ideological camps, with people increasingly associating with others who share their political beliefs. While our families and friends have become more polarized, have our workplaces followed suit?

Elisabeth Kempf: What we wanted to understand in this research project was to what extent we see this increasing political homogeneity also in the workplace. And more specifically, we were looking at the executive suite. So we wanted to understand whether the political alignment within the same executive team has increased over time.

Narrator: Chicago Booth’s Elisabeth Kempf and her coauthors used Execucomp data to identify top officials from companies in the S&P 1500, which comprise approximately 90 percent of all stock value in the United States. The researchers matched these names with voting records from 2008 to 2018 to measure how often two randomly drawn executives from a company were affiliated with the same political party.

Elisabeth Kempf: What the data showed pretty clearly was that there’s been an increase in political alignment within the same executive team over time. So in 2018, at the end of the sample period, we saw a lot more political homogeneity than we saw at the beginning of our sample period, which was 2008.

Narrator: Polarization increased 5 percentage points, with 75 percent of companies having executives match with one party in 2008 and 80 percent in 2018.

Elisabeth Kempf: So we do see that some of that is indeed coming from increased regional sorting, so that, you know, blue areas are becoming more blue also in terms of the executives that are located in that area. And, you know, red locations are becoming more red. But even within locations, we see that there is some sorting, so that even within the same area, Democrats like to cluster with Democrats and Republican executives like to cluster with Republican executives. We also saw which years contributed to that increase in homogeneity, and those years were years with presidential elections. So 2012, 2016, as well as 2010, the year of the Obamacare reform. We also thought that this increase in political homogeneity is even more surprising when you consider that executive teams have become more diverse on other dimensions.

Narrator: With teams having become more diverse in terms of race and gender, it begs the question: Are executives only hiring other executives with similar political ideologies? Kempf says that there’s really nothing stopping them from doing just that.

Elisabeth Kempf: And the US has actually no federal law that prohibits discrimination based on political ideology, at least for private employers. But several states have passed laws that prohibit such discrimination, and what we see in the data is that the increase in political homogeneity of the executive team is much more pronounced in states that have not passed a law that prohibits discrimination based on political views. And that does suggest that, you know, the legal environment plays a role, and therefore lawmakers should also be aware of it.

Narrator: A politically polarized C-suite doesn’t just change what you talk about after your meeting. It also changes how your company views a political event. After the election of Republican president Donald Trump in 2016, Republican executives were far less likely to sell shares of their company than Democrats were. On average, 22 percent of executives sold some of their company’s stock in a given month, but in the months after Trump’s election, Republican executives were 14 percentage points less likely to do so, signaling a belief that having a president with whom they were politically aligned would be good for their company’s prospects.

Elisabeth Kempf: You might care about political diversity in the workplace for a number of different reasons. One is it could affect firm performance, and that is actually something that is still very much an open question. But then of course, it’s also a question of values, right? So do we care about having politically diverse teams just from, you know, an ethics perspective? We do care about, you know, also gender and racial and religious diversity. And I think that that is very much a discussion that we should have across disciplines.