Generational identity can influence many aspects of life, from family and work to political views to consumer and corporate behavior. In the United States today, there are four adult generations: Millennials (born 1982 – 2005), Generation X (born 1961 – 1981), Baby Boomers (born 1943 – 1960), and the Silent Generation (born 1925 – 1942).[1] Of these four, only one – the Baby Boomers – have a dominating presence in U.S. corporate boardrooms. While the Millennial and Silent generations may be too young and too old, respectively, to have meaningful representation on corporate boards, Gen Xers (between the ages of 39 and 59 as of 2020) should be well-positioned to make a valuable contribution as corporate directors. Indeed, some of the most successful business leaders today are Gen Xers. In 2007, Gen Xers held a negligible 5 percent of board seats in S&P 1500 companies, but by 2017, 20 percent of the board seats were held by Gen Xers. Are these “New Kids on the Block” able to imprint some of their core values and beliefs on the organizations they now help lead? Do they influence overall firm performance? These are the questions we explore in a new paper, “New Kids on the Block: The Effect of Generation X Directors on Corporate Performance.”
Findings
We find that companies with more Gen Xers on their boards perform significantly better than their peers in terms of market valuation. We go through a battery of empirical tests to ensure that our findings are not driven by some unique firm characteristics, by other director attributes, and especially by the effect of director age. In one test, we look back in time and confirm that appointing young, non-Gen X directors did not have a similar positive effect on firm performance as the effect we document for Gen Xers today.
If the positive relationship between Gen X directors and firm performance is indeed causal, then there should be some unique value-enhancing attributes associated with such directors. In their review of the traits and attitudes of different generations, Neil Howe and William Strauss – the same authors who first coined the term “Millennial” in 1991 – characterize Gen Xers as survivalists, practical problem solvers, and innovative and pragmatic thinkers. All these characteristics could be partially responsible for the positive effect of Gen X directors on firm performance. A true generation-specific attribute is one that is associated with the early-life experiences that helped shape the peer personality of each distinct generation.[2] For Gen Xers, these experiences include the changing role of women in society and the rise of corporate social responsibility (CSR).
A recent report from the Wall Street Journal documents that, while Millennials get most of the attention for driving CSR and environmental, social, and governance (ESG) awareness, it is actually Gen Xers who are “helping propel sustainable investing into the mainstream.” At the same time, many recent studies in finance document that companies’ ESG activities are positively related to firm value. In our empirical analysis, we find strong evidence suggesting that companies with Gen X directors engage in significantly more value-enhancing ESG activities.
Our final set of results shows the moderating effect of Gen X directors on the relation between board gender diversity and firm value. Several recent studies have documented that female directors bring a unique set of skills, core values, and expertise to the boardroom that, in theory, should contribute to firm value. However, the empirical evidence on the relation between board gender diversity and firm performance remains inconclusive at best. One potential reason could be that, in many cases, women are appointed to corporate boards not because the firm’s management and incumbent directors recognize the value that women can bring to the boardroom, but as a response to societal pressure or government mandates. The result can be tokenism.[3] In other words, while women may be granted a seat in the boardroom, they may not be given an adequate opportunity to significantly contribute to board deliberations.
We believe that male Gen X directors can facilitate the inclusion of women on the board and can help them achieve their full potential as corporate directors. The reason for this lies in the early-life experiences that define the peer personality of Gen Xers. Specifically, they grew up in a time of disintegration of the traditional family with sharply rising divorce rates and more women entering the workforce. The result for Gen Xers was a “latchkey” childhood, but also an understanding and appreciation of the changing role of women in society and business. Therefore, we conjecture that boards with male Gen X directors would be less susceptible to tokenism when it comes to promoting board gender diversity.
Our empirical findings support this hypothesis. We document that the relation between female directors and firm performance is significantly positive when the board includes male Generation X directors. Given the recent increase in female board representation that coincides with the increase in Generation X directors that we document in this paper, the future for board gender diversity and inclusion is looking brighter than ever before.
Generational theory is not without its critics. Howe and Strauss have been criticized for stereotyping all members of a generation and diminishing the importance of other personal attributes, such as race, sex, or religion. In response, Howe and Strauss have argued that: “We’ve never tried to say that any individual generation is going to be monochromatic. It will obviously include all kinds of people. But as you look at generations as social units, we consider it to be at least as powerful and, in our view, far more powerful than other social groupings such as economic class, race, sex, religion, and political parties.” It is important to note that if generational theory skeptics are correct, and generational identity does not systematically affect how people think and behave, this would introduce a strong bias against any of our findings.
An interesting area for future research would be the extension of our study to an international setting. Clearly, some of the early-life experiences that helped shape the peer personality of Gen Xers (or any other generation) would differ significantly from country to country. Investigating the interaction between generational and geographical differences and their impact on various corporate outcomes could be a fruitful avenue for future research.
ENDNOTES
[1] The years for each generation are based on Howe and Strauss (2007).
[2] Howe and Strauss (1991, p. 32) define peer personality as a set of collective behavioral traits and attitudes that manifest themselves throughout a generation’s lifecycle trajectory.
[3] Tokenism is “The practice of making only a perfunctory or symbolic effort to do a particular thing, especially by recruiting a small number of people from under-represented groups in order to give the appearance of sexual or racial equality within a workforce.” Oxford Dictionaries Online.
This post comes to us from professors Zhaozhao He, Mihail Miletkov, and Viktoriya Staneva at the University of New Hampshire. It is based on their recent paper, “New Kids on the Block: The Effect of Generation X Directors on Corporate Performance,’ available here. A version of this post appeared on Duke Law School’s FinReg Blog, here.