The spread of gender quotas for company boards
Mar 25th 2014, 23:50 BY H.J.
WHEN Norway introduced a 40% quota for female directors of listed companies in 2006, to come into force in 2008, it was a first. Non-complying firms could theoretically be forcibly dissolved, though none has in fact suffered such a fate. Since then gender quotas for boards have been imposed in Belgium, Iceland, Italy, the Netherlands and Spain (though with less severe sanctions: non-complying firms must generally explain in their annual reports why they fell short and what they plan to do about it). The European Commission is considering imposing quotas across the EU. Malaysia has imposed a 30% quota for new appointments to boards, and Brazil a 40% target, though only for state-controlled firms. The governments of several other countries, including Australia, Britain and Sweden, have threatened to impose quotas if firms do not appoint more female directors voluntarily. So why are gender quotas becoming more common?
One reason is a growing impatience with the glacial pace of voluntary change: women are the majority of all graduates almost everywhere in the developed world, but make up a smaller share of the workforce the further up the corporate ladder they go. Another is that Norway’s quota law has not been the disaster some predicted. “As a principle, I don’t like quotas,” Ider Kreutzer, the former chief executive of Storebrand, an insurance group, told the Financial Times the year after the law came into force. “But I have not been able to find any big problems with the legislation in practice.” Some had worried that they would actually decrease diversity by forcing companies to dive for the same small pool of eligible women, nicknamed the “golden skirts”. In fact, Norway still has more “golden trousers”—male directors are twice as likely to sit on more than one board. Nor did it obviously lead to less qualified boards: female Norwegian board members are more likely to have a degree than male ones.
That is not to say quotas are now uncontroversial. Whether you think robust measures to increase the share of women in senior management are a good thing in the first place depends partly on how convinced you are that diversity in management is important. It might improve performance by mirroring the diversity of customers—or, as our Schumpeter columnist recently argued (though about cultural rather than gender diversity), it might increase conflict, worsen communication and reduce workplace trust. Easier to dismiss is the still-common objection that quotas are anti-meritocratic: that is more true of the status quo. Oodles of research demonstrates that women are evaluated less positively than identically qualified men when applying for stereotypically male jobs, such as leadership roles. One study found that a commitment by hiring committees to shortlists with at least 25% women helped to remove anti-woman bias.
Over time, advocates of quotas hope that a sudden large increase in the number of women in leadership will change attitudes. They point to the results of a law passed in 1993 in India that reserved positions for women in randomly selected village councils. A decade later women were more likely to stand for, and win, elected positions in those villages that had by chance reserved positions for women in the previous two elections. But life is likely to be hard for the pioneers. In a review of the effects of gender targets and quotas, Jennifer Whelan and Robert Wood of Melbourne Business School found that women who were appointed to senior management under American affirmative-action policies are seen as “less qualified, less competent and less legitimate in their role” than their male colleagues, or women appointed without targets or quotas—though there is no research evidence that they actually are.
Little evidence that gender quotas for women on boards of directors improve firm performance
Nina Smith Aarhus University, Denmark, and IZA, Germany
Arguments for increasing gender diversity on boards of directors range from ensuring equal opportunity to improving firm performance, but the empirical results are mixed and often negative. Current research does not justify gender quotas on grounds of economic efficiency. Furthermore, in most countries the number of women qualified to join boards of directors is limited, and it is not clear from the evidence that quotas lead to a larger pool of qualified female candidates in the medium and long term.
• Quotas increase the number of women on boards of directors.
• The decision-making process improves with greater gender diversity on boards.
• Having female board members seems to improve board attendance.
• Having female top executives may have positive effects on the career development of women at lower levels of an organization.
• Boards with more female members tend to be tougher monitors of company executives.
• Boards with diverse members or members who differ from the company’s senior management may experience communication problems internally and with management.
• Quotas imply that less experienced women will join boards because the supply of qualified women in senior executive positions is thin.
• Quotas seem to have little positive effect on increasing the pool of women with senior executive experience.
• Despite some positive outcomes, the short-term performance effects of female board members are insignificant or negative, and it is too soon to establish the long-term effects.
AUTHOR’S MAIN MESSAGE
From an economic efficiency perspective, ensuring that there are good female candidates for board positions requires widening the pipeline of women progressing to senior management. Policymakers may have to change their focus from requiring quotas for the top of an organization to the much broader task of getting a more balanced gender division of careers within the family, for instance by encouraging more fathers to take advantage of parental leave schemes.
(Read the whole article by clicking on the link: http://wol.iza.org/articles/gender-quotas-on-boards-of-directors.pdf)
Gender quotas are discriminatory
Posted on March 8, 2013 by harald_czycholl
No doubt: Getting more women into top corporate positions is an important goal. But the idea of forcing companies to fulfill quotas is the wrong way to reach that goal. Quotas are a bad idea: They don’t improve the current situation. And they are discriminatory to both, men and women.
Those supporting gender quotas almost always name the Norwegian model as a positive example. In Norway, 40 percent of corporate board members are by law required to be women. This policy is unbelievably naive though. Even in large countries like Germany or the US, women haven’t had the same opportunities to gain corporate governance and management skills in the past. Far more men than women have a university-degree in business, pursued MBA programs or received on-the-job management training, so there are far more men than women in the talent pool. Being a relatively small country such as Norway, the talent pool of qualified women is even smaller. The chances that the women who get selected may be less qualified than their male counterparts are quite high. The result of this policy is pointed out in a study published by the University of Michigan: The quota law “led to decreases in firm value because new directors did not have the same monitoring or advising capabilities of the other directors before the imposed change”.
This is quite a surprise, since those supporting gender quotas also often claim that more women in top corporate positions would be the best way to pursue better business. If women really were better managers, then how come Norway’s policy didn’t improve corporate performance? Glorifying women’s business sense doesn’t serve the cause of equality – it just creates expectations that can’t be met. The gender doesn’t have any influence on the qualifications as managers. It’s a matter of education and experience.
Also, quotas are an instrument of discrimination, in either way. If a black candidate doesn’t get selected because of being black, this is discriminatory, of course. If a female candidate doesn’t get selected because of being a woman – no doubt that this is discriminatory as well. So it is also obviously discriminatory if a male candidate doesn’t get selected because of being a man. And this will inevitably happen when imposing gender quotas.
But quotas are also discriminatory to those who can benefit from them individually: Positive discrimination is discrimination as well. So it is also a case of discrimination, if a female candidate gets selected because of being a woman. The British TV presenter Kat Akingbade spoke out about what it means to those selected upon such criteria. “Positive discrimination robs an individual of drive and self-motivation”, she said after finding out that she had gotten her dream job because she was black. “It completely undermines the achievements and abilities of the hard-working and truly gifted. If employers are pressed to select candidates on the basis of race, sex or gender to diversify the workplace, they will care less about a candidate’s ability, and eventually one ‘protected characteristic’ will blur into another.”
Gender quotas treat women as if they don’t have the qualities to reach the top by themselves. They make it mandatory to select women on the basis of their gender – this does them a disservice. Women, just like men, should be chosen on the basis of their individual qualities and abilities. Gender shouldn’t play a role at all.
Women have the potential to catch up by themselves: They make up the majority of university graduates today and they have more or less closed the pay gap. The imbalances that still exist are due to the fact that women tend to take a timeout of one year or more when having children. So what we need is better support for women who want to combine their careers and their family lives. We need better public childcare and more part-time jobs. But we don’t need gender quotas.
Why Gender Quotas for Boards Can Be an Effective Tool in Promoting Balance
Dr Suzanne Doyle Morris http://femalebreadwinners.com
I have heard good arguments from men and women both for and against gender quotas – and feelings do not necessarily align with gender. I have heard women argue vociferously against them and men speak up in their favour. As this is probably the most frequently asked question I’ve been asked in the last 18 months, I thought I’d share why I’m in favour of quotas if we can’t reach parity of our own volition.
Clearly, every woman and man would like to be awarded Board positions based on merit. This has largely fed the argument against them; that ‘giving’ women these positions will undermine their credibility with colleagues and diminish their sense of accomplishment. Women would rather feel like ‘I got there on my own’. While I completely empathise with this position; let’s not cut off our nose to spite our feminist face. We think women will ‘worry’ about why they were given a senior role or if they were advantaged because of their gender. However, Edward doesn’t wonder if he was given a ‘helping hand’ into senior roles because he does favours for John or routinely has drinks with Robert. Men don’t take time to question their promotions. Rather they assume what the women who are rewarded with these promotion must also assume; ‘I got it because I’m damn good!’ They are not handing out Board positions like sweets, if you are qualified enough to be offered one; you are qualified enough to excel. No Board is going to take a huge risk on an unqualified candidate simply because she is flavour of the month. While gender based quotas are not popular as a solution, I thought I’d defend them on several grounds:
Here are my top 3 reasons why Quotas Can be a Useful Temporary Measure:
1. Women have historically been fed the line that if enough of us enter the workforce, then equal representation will ‘trickle up’. This is just not happening. Women have made up at least half of all university graduates in Western countries for the last 20 years and we are not reaching ‘the top’ in any greater numbers. Organisations can no longer say they are truly meritocratic if only the male half of their initial intake is making into senior ranks. Quotas may be the best temporary measure we need to introduce enough senior women into the most upper echelons. From here senior women can act as role models and affect the transformative culture change that 21st century organisations desperately need.
2. Ironically, the presence of more women around a senior table allows any individual woman to be heard more as individuals. I, perhaps like you, have attended meetings where I was the only woman. When you speak as the only woman, its very easy for men to perceive your comment as ‘That’s the way women see it’ rather than “That’s they way Suzanne sees it.” Having more women around the table makes it easier for each woman to speak up, without feeling the pressure of being representative of her entire gender. One woman is a token, two is a conspiracy but three women paradoxically are seen as individuals. A quota would help ensure the ‘cheese’ does not have to stand alone.
3. The presence of at least 3 women at Board level has been correlated with so many positive benefits ranging from higher profitability, increased reliability of financial reporting to more satisfied customers and employees. How does the mere presence of women affect these areas? Simple, by limiting group think which enhances corporate governance. Research shows women on Boards are more likely than their male colleagues to take notes, do the reading and even attend Board meetings. They ask the ‘obvious’ questions that no one else asks. All this leads to more robust management practices and lowers the risk of group think. Women are not better Board members than men, but they bring different skills and it is these skills that will push organisations past the ‘business as usual’ model that must change.
SEPTEMBER 5, 2014
Gender Quotas Worked in Norway. Why Not Here?
By Alice Lee in New Republic
Gender equity in the corporate world has long been a goal that’s paid much lip service, but has nothing to enforce it but good intentions. Unsatisfied with the slow progress, a handful of countries have, over the last ten years, embraced the idea of gender quotas to govern corporate boards (a potential solution to inequality Bryce Covert suggested in a piece for The New Republic this summer). According to the 2014 International Business Report, the percentage of world business leaders in favor of gender quotas has increased from 37 percent in 2013 to 45 percent in 2014. And it isn’t just in Europe, where the quota trend began. 68 percent of leaders surveyed in Latin American and 71 percent of those in Asia Pacific (not including Japan) supported gender quotas.
When looking at the statistics, this shift in favor of quotas is not wholly surprising. The number of female leaders in business and on corporate boards remains stubbornly low, despite global efforts throughout the years to promote equality. Today, only 12 percent of businesses worldwide have a female CEO. Women also only hold 24 percent of all senior roles in companies—a stat more or less consistent since 2007.
Corporate board gender quotas were first introduced in Norway in 2003. Before their implementation, the country had a long history of using quota policies to help increase female representation in public office. The Gender Equality Act in 1981 required 40 percent female representation in public appointed offices and councils, and the Municipal Act in 1993 required 40 percent female representation in for all appointed bodies in the Municipal Council. However, when quotas came into the economic sphere, there was a prolonged back-and-forth, as a wide swath of employers tried to halt the legislation. But after three years of debate, corporate board gender quotas passed the Norwegian Parliament.
The government ordered companies to have a 40 percent female board or be shut down. As the number of female board members in Norway drastically increased, jumping from 15.9 percent in 2004 to its 40 percent target in 2008, other countries in Europe followed suit, including Spain in 2007, and France and Iceland in 2010. Most recently, in 2013, the European Parliament passed a proposal for publicly listed companies to have 40 percent of non-executive board members be female by 2020. The proposal states that if these European companies fail to meet that target, they will be required to fix their selection criteria so that the hiring of women is prioritized. The proposal is now waiting for approval among the 28 E.U. member states.
Corporate titans like Renault-Nissan Alliance’s CEO Carlos Ghosn have publicly come out in support of the quotes. At the “Gender-driven Growth” panel at the 2014 World Economic Forum, Ghosn summed up the argument in favor of quotas succinctly: “When you have two percent of your management pool made by women, there is no way with big principles and good attitudes that you are going to change this radically. Quotas are important. Why? Because quotas lead to action. Action means hiring, training, coaching, and putting in the process of the company the systematic decision, forcing the selection of female potential at all levels.”
Also at the forum, Christine Lagarde, managing director of the International Monetary Fund, admitted that while she had objections to gender quotas initially, she is now an advocate of them: “I soon realize that unless we had targets, if not quotas, there was no way we were going to make the right step.”
Part of the reason for this prolonged stagnancy is because much of the discrimination that impedes the hiring of female board members is subconscious. While employers may not actively seek to exclude women, factors such as perceived family and child-rearing responsibilities lead to deep-seated stereotypes suggesting women are not be able to take on corporate leadership roles.
“Some of the corporate board members I have spoken to hold the outdated view that discrimination occurs only when there is conscious animus, as in ‘I don’t want to hire women.’ … But the dynamics of discrimination are often, today, more subtle than that. Stereotyping (as in ‘women have kids and won’t travel’) can lead to the exclusion of qualified female candidates, and so can unconscious bias,” wrote Anne Alstott, a Yale Law professor who has studied gender quota policies, via e-mail. “Gender quotas might be one way of prompting attention to the twenty-first century dynamics of discrimination that can exclude qualified women from high-level positions.”
Despite progress, gender quotas aren’t a global solution. To have the most impact, quotas need to fit within the country’s cultural expectations of authority. In a Harvard Business Review piece about their recent study, authors Soo Min Toh and Geoffrey Leonardelli argue that countries with “tight” cultures will be more successful in promoting gender parity through gender quotas than “loose” cultures.
For their study, published originally in the journal Organizational Dynamics, Toh and Leonardelli looked at 32 countries with varying levels of cultural tightness—defined as “the degree to which cultural norms are clear and likely to be enforced by authorities through the use of sanctions.”8 (So by this definition, Norway qualified as “tight,” as well as Pakistan and South Korea, while the United States and New Zealand were deemed “loose.”) Using 2005 World Bank data, they investigated the percentage of female representation in different leadership positions (legislators, senior officials, and managers) in these countries and found that within tight cultures, authorities are more likely to strictly enforce policies and demand higher levels of compliance. Additionally, people within tight cultures are more likely to accept and adhere to top-down policies such as gender quotas.
On the other hand, “loose” countries like the United States (officially deemed “slightly loose” by Toh and Leonardelli), are less likely to reinforce egalitarian practices, despite the higher likelihood to believe in equality.
To put it simply, quotas go against many of America’s cultural norms. Kathleen Gerson, a New York University sociology professor and author ofThe Unfinished Revolution: Coming of Age in a New Era of Gender, Work, and Family, explains: “Arguing in favor of quotas goes against the notion that everyone has an equal opportunity to be represented as an individual rather than as a member of a group.”
Such arguments run close to those regarding affirmative action in the United States. Opponents of affirmative action have made the case that students would be favored because of their race rather than their academic achievements and abilities, resulting in admissions policies that would not provide equal opportunities. Similarly, some believe that gender quotas would give gender-based preferences to board candidates, leading to the possible exclusion of more highly competent male candidates and the hiring of less competent female candidates.
Beyond such cultural reservations, there is considerable skepticism that quotas actually make a significant difference in improving female representation. In Norway, a strict gender quota certainly boosted the percentage of women in senior positions, but it also caused what’s been dubbed the “golden skirt” phenomenon: Certain women hold multiple board positions, meaning that while more board positions are held by women, not as many new women are entering the board room as hoped. And, even now, Norway has fewer women CEOs than the United States. It was thought that with corporate board quotas, more women could then have access to higher senior management positions. However, only 3 percent of Norway’s large companies (with a capitalization market value over $10 billion dollars) have female CEOs, while 5 percent of U.S. Fortune 500 companies have female CEOs.
Given the skepticism as well as the cultural, social, and legal barriers, the United States will have a hard time enforcing gender quotas. One possible alternative that uses a top-down approach would be to create a system of incentives and penalties based on a company’s success in gender equity. According to Alstott, this system more closely fits the business culture of the United States, as the federal government already uses tax incentives to encourage certain business practices. Unlike the Norwegian model of liquidating a company for not meeting a quota, tax incentives are less threatening. The hiring of women would be more voluntary than forced, eliminating at least some of the bias that a woman was hired to just fill a quota.
But until a far-reaching, top down policy comes to pass, the United States will have to take steps that stem from the voluntary efforts from individual companies, female advocacy groups, and individual women.
Gender Quotas in Hiring Drive Away Both Women and Men
Meir Shemla and Anja Kreienberg 10/16/2014
It’s no secret. Good companies need good employees. In the war for top talent, companies are looking for ways to be more competitive – that’s especially true of the underutilized female talent pool. To attract more women, some companies have instituted gender-based affirmative action measures. One of the most controversial of these is the gender quota where organizations set aside a specific percentage of leadership positions for female employees. Instead of attracting great employees, however, we found that gender quotas drive top talent away. In a study we ran using Qualtrics , we found that both women and men were less attracted to firms that instituted a gender quota and were less likely to pursue jobs there.
To begin our study, we introduced participants to two different job advertisements. The first noted that the company in question advocated gender diversity and, as a result, had set aside 40% of leadership — specifically management and supervisory board — positions for women. The second job advertisement included no information about either gender diversity or a quota.
Using the second advertisement as the control group, we found that one in four men were less likely to pursue a job at the firm employing a gender quota. Women also responded negatively to the gender quota that was meant to make the company more competitive in hiring women; 13% of women noted they would be less likely to seek a job at the company with the gender preference for hiring.
It is not that people didn’t understand the importance of gender diversity in the workforce, it was the quota itself that was most unattractive. Nearly 70% of respondents in the gender quota condition – of which 52% were female and 48% male – said that gender quotas in general were unattractive to them. Why? Respondents noted that a gender quota negated the importance of merit and led to unintended consequences.
First, when offered a job in the presence of a gender quota, female respondents were 18% more likely to attribute their success to preferential treatment rather than to their own merit. Second, when another woman was offered a job instead of the respondent at the firm with the gender quota, female respondents were 20% and male respondents 29% more likely to stigmatize that woman as incompetent, attributing her success to gender and preferential treatment rather than merit. Finally, female and male respondents felt that the values of a firm employing a gender quota fit less into their value and belief system, given that merit seemingly played a lesser role in the hiring decision than gender. Given the stigma associated with the quota and people hired under a quota, it’s no wonder that quotas have the adverse impact of actually driving away the very talent they were put in place to attract.
What does this mean for companies and policy makers? As they attempt to move toward a more diversified workforce, they may want to shift their focus away from a gender quota, which has counterproductive effects on a firm’s attractiveness to talented women and men. That doesn’t mean, however, that they should abandon the goal of diversity.
For example, one might learn from the global consulting firm, McKinsey & Company . Rather than institute a gender quota, McKinsey has demonstrated their commitment to gender diversity by organizing networking events and career-focused initiatives specifically designed for women. They also have policies in place to accommodate female employees in balancing family and career. These initiatives attract women without undermining them by introducing the stigma a gender quota can carry.
While using a gender quota might seem like an effective way to compete in the war for talent, our research found that it actually drives away the highly talented professionals they were intended to attract. Gender diversity is important, but everyone wants to be valued for what they can bring to the table. When companies and policy makers institute gender quotas, they’re inadvertently driving away the very people they sought to attract by appearing to value diversity over merit. And that’s a situation in which no one wins.
Women on boards: Are quotas really the answer
Kimberly Weisul DECEMBER 5, 2014 Fortune Magazine
Germany is the latest European country to embrace the idea. But how well have quotas been working?
Germany is about to undertake a project that has become familiar in Europe but would be unheard-of in the U.S.: To get more women onto corporate boards, the government will set legal quotas.
The current proposal, expected to be approved in January, will require that by 2016, 30 percent of the non-executive supervisory board seats at 114 German listed companies will be held by women. In 2015, smaller companies will have to set their own goals for gender diversity on their boards, and to state how they plan to meet those goals. “This law is an important step for equality because it will initiate cultural change in the workplace,” German Chancellor Angela Merkel told parliament. “We can’t afford to do without the skills of women.”
The arguments for gender diversity on corporate boards are many. Studies have linked gender-diverse boards with better financial performance, better governance, increased innovation, and improved opportunities for other women within the affected companies. Then there’s the fact that all-male, all-white boards reflect neither a large company’s customers nor its talent pool.
“There are still many companies that have zero women on their board,” says Brande Stellings, vice president of corporate board services for Catalyst, a not-for-profit that works to advance professional women. “Really, in this day and age, they should be embarrassed.” In the U.S., women hold just 17 percent of the board seats of Fortune 500 companies.
Germany is following in the footsteps of Norway, which enacted a similar law – albeit with a 40 percent quota – back in 2003. Since then, other countries, including France, Spain and the Netherlands, have followed suit. But a close look at the results of these quotas – and of Norway’s in particular, which have been in effect the longest – shows that the results might not be all that their backers intend.
In Germany, as in Norway and other countries before, lobbying against the proposed rule is expected to be fierce. BMW has already come out against the proposal, saying that “BMW as a company doesn’t believe in quotas.” In Norway, the rule was originally supposed to apply to about 500 companies. By the time the law went into effect, about 100 of those companies had changed their corporate ownership structure so that the law no longer applied to them. Marianne Bertrand, a professor at the University of Chicago’s Booth School of Business, who has studied the Norwegian law extensively, says there’s no proof that the Norwegian companies changed their ownership to avoid the law – but it sure does look that way.
In Norway, as in Germany and other European Union states that have enacted quotas, the objections have tended to be two-fold. One, as is the case with BMW, is a general revulsion at the idea of quotas. The other is that there simply aren’t enough women qualified to sit on corporate boards, and that putting more of them on boards would hurt overall board quality.
Corporate boards are presumed to be filled with CEOs and former CEOs, and there are certainly far fewer female CEOs than male ones. Entrepreneurs and partners at law firms tend to get short shrift, making it even harder for women to be considered.
On the other hand, we’re talking about a very small number of women: Stellings says that only about 250-300 board seats become available at Fortune 500 companies each year, and that there are enough women executive officers among Fortune 500 companies to fill every one of those board seats. That doesn’t even count any of the women leaders in government, academia, and consulting. Stellings further points out that half of Fortune 500 board members have never been CEOs.
When it comes to qualified women, she says, “It’s just not an issue.”
In Norway, in fact, despite all the hoopla claiming a dearth of qualified women, the women who were named to boards after the quotas were enacted were actually more qualified than the women who sat on the boards pre-quota, says Bertrand. Obviously, a number of qualified women had been overlooked. The Norwegian government actually intervened here by putting together a binder of women who were qualified and interested in serving, says Bertrand.
But many of the hoped-for results of the legislation don’t seem to have materialized in Norway, at least not in the first 10 years. Bertrand, who has recently co-authored a working paper on the subject, says, “We’re really hoping there could be some spillover for other women, and those could come in different forms.” Perhaps women on boards would push for more women in senior management. Or encourage the implementation of more family-friendly policies. Maybe female board members would prove to be inspiring to younger women.
The results suggest otherwise. “There is the possibility that there may have been some change in the C-suite,” says Bertrand. “Beyond that, we find nothing.”
Norwegian companies did experience one other change as a result of the law, one that was not anticipated. Labor expenses went up. That’s not because people were paid more or because more people were hired. It’s because there were fewer layoffs. “One possibility is that women directors care more about workers, or think about broader issues than shareholder implications. Another could be that the layoffs weren’t the right business decision in the long run. That’s something we won’t know for a long time,” says David Matsa, a professor at Northwestern University’s Kellogg School of Management, who co-authored a paper on the subject.
In the U.S., observers agree that quotas are not a possibility. So advocates for greater gender diversity on boards are relying on sponsorships and mentoring of board-ready women, and urging companies to pledge to reach defined levels of board diversity within a set a timeframe. Says Stellings: “It’s really a matter of, are they looking for women? Because then we think progress can happen.”