Can Gender Quotas Get More Women Into Boardrooms?
Most people agree that there aren’t enough women in corporate boardrooms, but there’s little consensus on the best way to increase numbers and improve director diversity. Some countries use voluntary targets, while others employ tougher (often controversial) legislative measures such as binding quotas to tackle the problem.
In Europe, binding gender quotas are increasingly prevalent. In March, Germany became the latest European country to make quotas mandatory. Starting in 2016, major German companies will need to fill 30 percent of non-executive board seats with women. Germany follows in the footsteps of other European countries such as Norway, Italy, France, and Spain in instituting such a policy.
Still, the 28 countries in the European Union are far from unanimous on how to get more women into boardrooms, and progress has been patchy. Earlier this month, EU attempts to speed up and unify change ran into opposition: The European Commission’s proposal to raise the proportion of all types of female directors of publically listed companies to 33 percent by 2020 was watered down to 20 percent after some member countries argued in favor of non-binding measures to boost female representation.
The U.K. has not gone down the quota route, but has instead favored voluntary target-setting and a corporate governance code. Although women hold fewer than 25 percent of board jobs at FTSE 100 companies, that’s up from 12.5 percent in 2011, when a government commission review flagged the lack of female directors. The next step in the U.K. is to increase the number of executive directors, as most women on FTSE 100 boards hold non-executive positions.
In the U.S., where there is also little appetite for quotas, gender balance in company boardrooms is moving at an even slower pace. Fewer than 20 percent of board seats at Standard & Poor's 500-stock index companies are held by women directors, according to a 2014 study by Catalyst.
Compared to such countries as Norway, where women hold 35.5 percent of board seats in European stock index companies (according to the same Catalyst study), progress in the U.S. has been lackluster. Norway adopted rigorous methods a decade ago, opting for a 40 percent mandatory quota level for female board directors, using penalties that include company dissolution for those that continue to flout the law.
“As other countries move aggressively to diversify corporate boards, the U.S. faces increasing pressure to make this a priority or be left behind,” says Brande Stellings, vice president of Catalyst Corporate Services. Stellings agrees that quotas are one way to effect change, but she points out that other means can achieve the same result, including voluntary target setting, public disclosure obligations, and adhering to a public charter. “We recognize that different approaches will be right for different countries, but the important factor is that action is taken," she says. "Companies set objectives for business objectives that matter; why not the board?”
Quotas are by no means perfect. There’s always a risk that companies will appoint a female to the board just to comply with quota regulations, rather than recruiting the best person for the job. After quotas were introduced in Norway, women held multiple directorships as companies rushed to meet legal requirements. The practice gained these directors the nickname “golden skirts.”
The European Confederation of Directors Associations (EcoDa) wants to see more women in the boardroom but believes getting there by merit is essential. “A more diverse board, including gender diversity, promotes a richer debate in the boardroom. However women should be chosen because of their qualifications and not because they are women,” says Béatrice Richez-Baum, EcoDa secretary general.
As corporate governance rises up the agenda, gender inequality in global boardrooms and a lack of diversity in senior decision-making is getting more scrutiny from the public and stakeholders. If companies are not prepared to do something to improve the mix, others are likely to do it. Diverse leadership and governance are linked to “stronger business outcomes and corporate social performance,” says Stellings. “Shareholders and investors are increasingly focused on the risk of not having gender-diverse boards.”