Immigrant representation in the C-suite is the new norm. Foreign-born CEOs currently lead several global corporations in the U.S., including Google, Microsoft, and Pepsi. In fact, almost 80% of America’s privately held, billion-dollar companies have an immigrant founder or immigrant in a top role such as CEO or CTO. But on the ladder of diversity, representation is the bottom rung, and a new study in the Global Strategy Journal suggests that foreign-born CEOs have a climb in store before achieving equality in the board room.
“Despite their great visibility and power as members of the corporate elite, foreign-born CEOs still experience prejudice, likely putting them at a disadvantage compared to their native-born counterparts,” says Yannick Thams, an associate professor of management at Florida Atlantic University and co-author of the study.
Thams and co-author Marketa Rickley, an assistant professor of management at UNC Greensboro, demonstrated that when a company’s performance is sub-par, immigrant CEOs were three times more likely to be dismissed than native CEOs. Using a sample of 1,739 CEO turnovers from the S&P 1500 between 2000 and 2018, they found 364 dismissals. When company performance was low, foreign-born CEOs had a 15.96% probability of dismissal, compared to 4.02% for native-born CEOs. The results held up against a dizzying array of controls for variables in industry, company, board composition, and CEO demographics.
Immigrant CEOs did not, however, experience the kind of constant, heightened risk of dismissal that women and racial minority CEOs do, typically attributed to discrimination. Immigrant CEOs’ dismissal risk only grew against native peers when their company performance was down. While poor company performance may seem like fertile ground for a CEO’s dismissal, boards are surprisingly inconsistent about resorting to firings.
“Performance is the best predictor of CEO dismissal, but at best it only explains dismissal half the time,” Rickley says. “Underperforming CEOs are often retained. It comes down to whether the board attributes a company’s poor performance to external factors or to the CEO’s managerial decisions, and that sensemaking is where bias can creep in.”
Board interpretation of poor financial performance leaves foreign-born CEOs vulnerable because of intergroup bias. Simply put, this bias means people tend to claim the successes and explain away the failures of someone they identify as a member of their ingroup. Outgroup members, by contrast, get disproportionately blamed for failure and discredited for success.
“In experimental and observational studies, intergroup bias becomes more pronounced in cases where the ingroup perceives itself to be under threat,” Rickley says. “We believe that’s why we don’t see a discriminatory effect on foreign-born CEOs outside of company financial downturns.”
The study’s result has much farther-reaching impact than to reveal inherent discrimination against immigrants in the C-suite. It means that many already underperforming companies may be subjecting themselves to a dual crisis and loss of contextual know-how, valuable relationships, organizational memory, and process fidelity. Studies estimate forced CEO turnover also costs shareholders $112 billion globally in total returns each year. Avoiding these types of losses is the company board’s primary objective, and unless they can institute more objective CEO assessments, their own performance might be subject to further examination.
Find a full explanation of the study and how authors modeled corporate board assessments of foreign-born CEOs in the full text, available in the Global Strategy Journal.