Ethnic Minority Representation on the Board and Foreign Competition Threat

The underrepresentation of ethnic minorities among directors of corporate boards has been widely recognized as a challenging issue for Corporate America. In this paper, we propose a novel mechanism by which boards of directors improve their ethnic minority representation. We draw on a branch of social categorization theory and argue that competition threat from a foreign source alleviates intergroup biases of majority ingroup (White directors) against existing minority outgroup (non-White directors) because the common threat helps former outgroup members be recategorized as part of the ingroup. We theorize that this helps enhance ethnic minority representation on the board. Leveraging an exogenous shock that increased foreign competition threats for large U.S. manufacturing firms, our empirical investigation shows that firms exposed to high foreign competition threat recognized the competitive threat from a foreign source more frequently and expressed a greater sense of “we-ness”—a sense of belonging to a common group—in their annual reports than firms exposed to low foreign competition threat. Our difference-in-differences analysis further indicates that firms exposed to high foreign competition threats are 15% more likely to include minority directors on their boards after the shock than those that are not as much exposed. At the same time, we find no evidence that such an increase in ethnic minority representation is driven by firms’ strategic responses to foreign competition threats, sorting and discrimination corrections in the director search, or institutional pressures. Taken together, our study provides important insight into a source and a remedy of ethnic minority underrepresentation.