Millennial managers

• Published date: 01 July 2024
• Author: Ellie Luu,Silvina Rubio
• Date: 01 July 2024
• DOI: http://doi.org/10.1111/corg.12564

SPECIAL ISSUE ARTICLE

Millennial managers

Ellie Luu

1

| Silvina Rubio

2

1

Cathedral Wing, Strathclyde Business School,

Glasgow, UK

2

University of Bristol Business School, Bristol,

UK

Correspondence

Ellie Luu, Cathedral Wing, Strathclyde

Business School, 199 Cathedral Street,

Glasgow G4 0QU, UK.

Email: ellie.luu@strath.ac.uk

Abstract

Research Question/Issue: This paper investigates whether and how millennial mutual

fund managers differfrom managers born in other generations in terms of environmen-

tal, social, and governance (ESG) orientationin portfolio choices and voting decisions.

Research Findings/Insights: We find that millennial mutual fund managers hold port-

folios that are more ESG oriented than do managers from other generations, consis-

tent with anecdotal evidence suggesting that millennials are more driven by purpose

than profits. Our findings suggest that the observed relationship is stronger when

managers have more discretion over portfolio choices, that is, in active funds and

funds with lower flow-performance sensitivity. Furthermore, we find that millennial

managers respond more strongly to social movements by reallocating assets into

more socially conscious firms. We also find that millennial managers are more sup-

portive of environmental proposals when their outcome is contested.

Theoretical/Academic Implications: Our paper shows how cultural, political, and eco-

nomic events, including social movements experienced by people of the same age

cohort, shape preferences and beliefs and result in different investment strategies

and voting among mutual fund managers. We also show how institutional constraints

might limit managers' ability to impose their own preferences when investing or vot-

ing their shares.

Practitioner/Policy Implications: Millennials are increasingly replacing older genera-

tions in managerial roles and investing in the stock market due to wealth transfers

from their parents. This study offers insights to policymakers and investors interested

in understanding the drivers of ESG investment.

KEYWORDS

corporate governance, corporate social responsibility, CSR mechanisms, millennial managers

[M]illennial workers were asked what the primary pur-

pose of businesses should be—63 percent more of

them said “improving society”than said “generating

profit.”…[T]he sentiments of these generations will

drive not only their decisions as employees but also as

investors, with the world undergoing the largest trans-

fer of wealth in history: $24 trillion from baby boomers

to millennials. Larry Fink, CEO of BlackRock

1|INTRODUCTION

Millennials are now the largest generation and will represent 75% of

the workforce by 2025.

1

Survey and anecdotal evidence suggests that

this generation favors social and environmental goals over financial

ones,

2

but there is little rigorous empirical evidence to support this

claim. Studies exploring saving and consumption patterns find that

millennials do not differ from previous generations (Knittel &

Received: 6 October 2022 Revised: 11 September 2023 Accepted: 17 September 2023

DOI: 10.1111/corg.12564

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium,

provided the original work is properly cited.

© 2023 The Authors. Corporate Governance: An International Review published by John Wiley & Sons Ltd.

732 Corp Govern Int Rev. 2024;32:732–755.

wileyonlinelibrary.com/journal/corg

Murphy, 2019; Kurz et al., 2019). Understanding millennials' approach

to environmental, social, and governance (ESG) issues is important, as

this generation is increasingly entering managerial positions and the

stock market, and their views will shape the future of business. In this

paper, we study US mutual fund managers and find that millennial

managers are more ESG oriented than other generations when making

investment and voting decisions for mutual funds.

Social movements as well as cultural, political, and economic

events that members of the same generation experience in their early

years influence the way they experience the world (Mannheim, 1952),

creating common traits and attitudes (Lyons & Kuron, 2014;

Schuman & Scott, 1989). Studies consistently show that early-life

experiences contribute to unique management and investment styles

(Bernile et al., 2017; Malmendier et al., 2011; Schoar & Zuo, 2017).

Further, a common generational view can also be shaped through sim-

ilar educational experiences (Jung & Shin, 2019). Millennials grew up

during a time of terrorism (after the September 11, 2001, attacks),

increasingly frequent natural and man-made disasters, and the rapid

growth of technology and social media, and many entered the labor

market during the Great Recession (Ricci & Sautter, 2021). They saw

climate change emerge as a pressing global challenge, which gives

stakeholders a more central role in companies (Kahan & Rock, 2023).

Attention toward ESG investing—an approach that integrates ESG fac-

tors into the investment process—has grown exponentially over the

last decade (Gillan et al., 2021). ESG investing can be viewed as a

channel through which individuals address ESG-related issues (Heeb

et al., 2023), with the intrinsic social preferences of investors playing a

central role (Barber et al., 2021; Hartzmark & Sussman, 2019; Riedl &

Smeets, 2017). Based on these arguments, we hypothesize that

generational-shaping factors experienced by millennials influence their

approach to ESG issues through investment and voting choices.

To test this conjecture, we rely on the mutual fund setting for

two reasons. First, we can observe fund managers' decisions, as their

portfolio holdings and voting records must be regularly disclosed. We

focus on solo-managed funds because this allows us to identify who

makes the decision, which is blurred in team-managed funds (Hong &

Kostovetsky, 2012). Second, there are enough millennial managers in

the mutual fund industry to test our predictions empirically. That is

not the case for publicly listed firms, where only a few millennials cur-

rently are CEOs, but we believe the conclusions can be extended to

these companies.

3

We first study whether millennial managers invest in firms with

higher ESG scores. We use two proxies from Morningstar to capture

millennials' preference for ESG in portfolio holdings: ESG portfolio

score (a weighted average company-level ESG score for the holdings

in the portfolio) and Morningstar Globes (a fund's sustainability rank-

ing within a peer group, on a 1–5 scale). For our main explanatory var-

iable, we hand-collect data on the year of birth of US mutual fund

managers to define the different generations: millennials (1981–

1997), Generation X (1965–1980), baby boomers (1946–1964), and

the silent generation (1928–1945). Our empirical specifications con-

trol for other determinants of ESG scores, including fund and family

size, past performance and volatility, fees, turnover, fund age, fund

type, and manager gender. Importantly, our main specification

includes fund family fixed effects and exploits variation in ESG scores

by fund managers who belong to the same fund family. This specifica-

tion allows us to control for potential selection of managers with cer-

tain characteristics into different fund families (e.g., socially conscious

managers working for socially conscious fund families).

We find that the portfolio holdings of funds managed by millen-

nial managers are more ESG oriented than those of managers from

other generations. In particular, we find that millennials' portfolios

have ESG portfolio scores that are 0.654 higher than those of baby

boomers, on average, which represents a 1.4% increase relative to the

mean, or 0.173 standard deviations. Regarding our second proxy, we

find that millennial managers have 0.417 more Globes than baby

boomers, which represents a 14.1% increase relative to the mean

(or 0.359 standard deviations). These effects are economically large

and statistically significant using alternative ways of clustering stan-

dard errors (Hong & Kostovetsky, 2012).

4

We do not find significant

differences in ESG orientation between other generations. That is,

baby boomers are not more (or less) ESG oriented than Generation X

or the silent generation. We then examine funds experiencing a

change from a non-millennial to a millennial manager, where the

replacement of a manager is not likely to be driven by a marketable

ESG motive, and find that the ESG score of the fund increases after a

millennial manager steps in.

We further examine whether the observed effect of higher ESG

portfolio scores by millennial managers is more pronounced when

managers have more discretion over portfolio choices. Specifically, we

study factors that moderate the relationship between the generational

differences and portfolio holdings' ESG scores. First, we find that gen-

erational differences are present only in the subsample of actively

managed funds, as opposed to passive funds, consistent with the lim-

ited ability of passive fund managers to deviate from benchmarks to

favor ESG stocks (e.g., Chen et al., 2008). Second, we find that the

results are stronger in funds with low flow-performance sensitivity,

where managers can risk a lower financial return in the short run to

invest in assets that may outperform on the ESG dimension

(Gantchev et al., 2022). These results suggest that the type of fund

and the type of client can influence the extent to which millennials

can incorporate their ESG preferences into their funds' portfolio

holdings.

To better understand how managers of different generations

respond to social movements, we exploit the largest #MeToo protest,

which occurred in October 2017, and analyze changes in portfolio

holdings around the event. We find that millennials allocate more fund

assets to stocks with higher social scores, while we do not observe

changes across other managers. Using the environmental or gover-

nance score as a placebo test, we do not find any significant effect for

millennials or any other generation. These results indicate that millen-

nials respond differently to social movements than do other

managers.

Finally, we provide evidence consistent with millennial managers

having a differential ESG orientation in their voting decisions by

examining shareholder-sponsored ESG proposals. We exploit variation

LUU and RUBIO 733