What the Smart Money Says About Black CEOs

Investors’ reactions to an executive appointment often reflect negative bias, while institutional investors take a more positive view.

- Curtis L. Wesley Il, Hermann A. Ndofor, Enrica N. Ruggs, and Derek R. Avery

When any public company announces a new CEO, the board braces itself for investors’ reactions as they manifest in decreases or increases in share price. Investors are a highly salient stakeholder group whose responses to the appointment of chief executives, especially racial minorities, are highly anticipated and undoubtedly influence who is selected. But how much should their prospective reactions matter when a board is leaning toward selecting a Black candidate for the CEO role?

The issue is urgent. Despite noteworthy progress toward racial equity in some industries and at some job levels, Black representation in corporate America’s top leadership positions remains woefully low: The number of Black Fortune 500 CEOs peaked in 2023 — at nine. That is less than 1 in 50 for a racioethnic group that accounts for more than 1 in 8 Americans.

Recent research findings have highlighted how investors’ biases and perceptions influence their reactions to the appointment of Black CEOs. However, different groups of scholars have offered two highly divergent perspectives. One is pessimistic, suggesting that racial discrimination in American society pervades investors, thereby precipitating a negative stock market reaction to Black CEO appointments. The other, more optimistic view reflects positive market reactions when investors recognize the extensive and valuable human and social capital accrued by Black CEOs — individuals who overcame various hurdles to become senior executives.