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The lack of diversity in the governance of business
corporations is quickly becoming one of the most discussed topics in corporate
governance. It has ignited a heated
global debate, leading policymakers to wrestle with difficult questions that
lie at the intersection of market activity and social identity politics.
My new book, Challenging
Boardroom Homogeneity, will be published next month by Cambridge
University Press. In it, I draw on semi-structured
interviews with corporate board directors in Norway and documentary
content analysis of corporate securities filings in the United States to
empirically investigate the two main regulatory models designed to address
diversity in the boardroom — quotas and disclosure.
In this post, I focus on quotas. While quotas are anathema in the United States, their presence in Europe is striking. In their most potent form, quotas mandate
particular levels of gender balance in the boardroom. Countries such as Norway, France, Italy,
Iceland, Belgium, and (just last month) Germany
have all taken this path. In Germany,
both genders must constitute
at least 30 percent of the supervisory boards of specified German
companies beginning in 2016. In Norway,
non-compliant firms run the risk of court-ordered dissolution.
Little is known about the day-to-day operation of corporate quotas
around the world. To fill this void in
our knowledge, I interviewed Norwegian corporate directors about their
experiences under Norway’s controversial law – the very first quota on the
books. The participants in my study included men and women, as well as directors
appointed before and after the law came into effect.
A strong majority of the directors I interviewed supported
the law. The dominant narrative my
interviewees conveyed was that quota-induced gender diversity has positively
affected boardroom work and firm governance. Generally, respondents emphasized the range of
perspectives and experiences that women bring to the board, as well as the
value of women’s independence and outsider status. They also stressed women’s greater propensity
to engage in more rigorous deliberations, risk assessment, and monitoring.
But even if diversification has positive effects on company
governance, the question remains: Why
are quotas an appropriate mechanism by which to achieve those benefits?
Some commentators impugn the wisdom of quotas, charging that
they stigmatize and marginalize their beneficiaries. As one
critic wrote in The New York Times: “women admitted to boards in order to fulfill
a quota are unlikely to be seen as equals whose presence at the table is
merited.” These critiques must be taken
seriously. If the recipients of
affirmative action feel isolated, or that they are perceived as mere tokens,
how can such measures possibly be justified?
Without question, quotas are an imperfect means of
diversifying corporate boardrooms and in the book I explore the limitations of
the quota model. That said, critics
sometimes paint an incomplete picture and seldom ground their arguments in the
voices of those who presumably matter the most — those who actually live under
quota regimes. What do they themselves
say about quotas’ possibly pernicious effects?
My research asks exactly that question. Only a small minority of board members I
interviewed felt that female directors were stigmatized or isolated. My female interviewees explained this in
different ways. Some highlighted the
importance of the substantial number of women required by the law. By mandating gender balance, the law made
marginalization difficult, if not impossible.
As one female director told me:
“you can’t stigmatize 40 percent of the board. . . . [Y]ou could have
stigmatized one person, or 15 percent. . . . But you can’t stigmatize 40
percent.”
The
majority of female participants reported that they felt comfortable on the
boards on which they sat, discussed their contributions to these boards, and
confirmed the feeling that their boards
recognized or appreciated these contributions.
Though their
stories are complex, most characterized the quota as a positive vehicle that
had democratized access to the upper
echelons of the corporation — a space
previously closed to them. This suggests that the benefits of the quota law have
outweighed any stigmatizing costs, to the extent that these costs have
materialized.
Some critics may suggest that these results are self-evident – of course the beneficiaries of quotas will support the measures that opened up the otherwise closed doors of the boardroom. The reality, however, is far more complex. Most directors, including women, were initially opposed, hesitant, or agnostic about quotas. It was only after seeing the law in action and directly experiencing its effects that they eventually came to endorse it. A significant degree of the support ultimately stemmed from the view that the law was necessary to diversify boards in a meaningful way. For some directors, this acceptance of quotas caused them to question their own deeply held beliefs in free market principles.
There are many difficult and unresolved questions about the value and effects of quota laws. Whether a quota is appropriate for a given country will depend on that country’s socio-political context, its corporate governance culture, and characteristics particular to firms and industries. As policymakers around the world wrestle with these issues, however, it will be important to draw from the experiences of those who have lived under quota regimes. These narratives give us reason to believe that quotas are worthy of careful public policy consideration.
This post first
appeared (in modified form) on The Faculty Lounge.
Aaron A. Dhir, Associate Professor, Osgoode Hall Law School & Senior Research Scholar, Yale Law School.
