Why diversity quotas in the boardroom may be a good idea

Today we feature a guest post from our colleague over in the law school, Aaron A. Dhir, who is an Associate Professor at Osgoode Hall Law School and a Senior Research Scholar at Yale Law School. Aaron's book on boardroom diversity is out next month and it is causing quite a stir. So we asked him to tell us a little about the issue of diversity quotas on boards and why, despite the controversy, his research suggests that it might be a good idea. 

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. My sincere thanks to Andy and Dirk for inviting me to contribute this guest post to the Crane and Matten blog. 

Aaron A. Dhir, Associate Professor, Osgoode Hall Law School & Senior Research Scholar, Yale Law School. 

IKEAs flatpack approach to diversity

After our recent discussion of IKEA's role as a public institution  it was interesting to see this week that the company has been in hot water over the last few days after revelations that it removed images of women in its Saudi Arabia catalogue. The evidence, on the face of it, is pretty damning. As you can see in the pictures here, it really is a case of disappearing women. No doubt about it.

There is a feel of something ethically troubling here, with critics arguing that   IKEA should be upholding its values of equality. The Swedish trade ministerhas kicked in by criticising the company while IKEA itself has offered an apology, saying that the practice is "in conflict with company values".

The question we have to ask though is whether IKEA really is doing anything much wrong here? After all, isn't it up to them what pictures they want to put in their own catalogues? And don't they have a responsibility to meet local cultural norms as long as no ones fundamental rights are being infringed? Its not like any women were directly disadvantaged by their actions, we're they?

As far as we can see, though, IKEA hasn't been very smart or subtle in appearing to airbrush its women from Saudi. As far as cultural sensitivity goes, its a pretty basic effort to fit in with cultural norms in the country. But first, let's remember that IKEAs catalogues are increasingly just computer generated anyway, so maybe the women were never actually "there" in the first place. And second, let's not pretend that IKEA catalogues are a glowing example of diversity to begin with. Show us the rich ethnic mix in the catalogue. Or for that matter, the representations of women in hijab that constitute a large part of the female population in many parts of the world where the firm operates.

A global company it may be, but a globally diverse catalogue it is not. IKEA markets a homogenous global product for a global audience with less tailoring to local tastes even than other global giants such as McDonald's or Wall-Mart attempt.  So what are we complaining about here? That IKEA hasn't been 100% homogenous after all and we don't like it? Is homogeneity really the best solution to equality and diversity problems?

That's not to say it doesn't matter what pictures companies use in their marketing campaigns, because in our view, it certainly does. This is especially so for big companies like IKEA because they have such a major impact on the visual world around us. But demanding that they present a unified image across the globe just seems to be missing the point.  Shouldn't we be demanding that they present a genuinely diverse representation of their customers, maybe even one tailored to the societies in which they operate? Disappearing white women from your catalogues in Saudi Arabia certainly doesn't look good, but it's hardly the biggest problem here.

Regular readers of our academic research will know that we have a long standing interest in the role of companies in shaping people's citizenship opportunitiesand experience. IKEA here is clearly failing to promote the cause of women's equality in Saudi, insofar as equality is measured in terms of representation. This is one part of the picture (in the same way that failing to represent ethnic minorities or those with different sexual orientations in advertising presents and reinforces a skewed image of society). But it's not the only important one.

A critical role is also played by the company in its hiring and promotion policies, and in its other efforts to promote (or not) equality in Saudi. If the company isn't doing a good job on these fronts (and this is a question that demands further investigation) then presenting a pretty diversity picture in its catalogues would be little more than window dressing anyway. Let's hope the latest scandal presages some deeper consideration of how to deal with diversity at the company given its increasing global spread. Saudi women, if not the curiously disappearing catalogue models, deserve no less. 

Photo: IKEA
Thanks to Jeremy Sandler for alerting us to the story

McDonald's comes back out of le closet

The fast food chain McDonald's has recently released an interesting TV ad in France featuring a young gay character talking with his father. It's notable not just because it features a gay character in a big multinational company's commercial, but also because the character is actually hiding his sexuality.  You can see the spot with English subtitles here:



The ad has gained a lot of online attention. The spot itself has been seen by nearly 2m people on YouTube and there are countless sites (including repostings on YouTube) where commentators have made their views known about the ad. These views range from a positive appreciation of McDonald's for acknowledging the gay community to some pretty nasty homophobic vitriol. Somewhere in between there are those who are asking why a fast food company should even be mentioning someone's sexuality, and those that are questioning whether McDonald's is trying to reach out to a new, and potentially prosperous targt market. As we have explored in a recent paper (downloadable at SSRN), corporations have increasingly been involved in identity politcs, and this raises a number of critical debates about the intermingling of business and politics.

To understand the significance of McDonald's 'gay ad' though, we need to put it in context. The ad is one part of a larger campaign launched by the company last year featuring the strapline 'Venez Comme Vous Etre' (Come as You Are). The campaign includes film and print ads, viral videos and other stuff. The basic message of the campaign is everyone's welcome at McDonald's, however you're dressed, whatever your age or race. And whatever your sexual orientation. The official company line is that series "recognizes the diversity of McDonald's customers in France."

It's all part of the cosmopolitan identity that multinationals like McDonald's are increasingly seeking to create. Remember that not that long ago, anti-globalization campaigners in France saw McDonald's as a symbol of American big business and global injustice - and were wrecking their restaurants from time to time to prove the point. So in that context a campaign that presents the company as a broad church that welcomes one and all makes a lot of sense. So much so that in food-loving France, the chain enjoys growing popularity and has become, according to The Times newspaper, the country’s ‘worst-kept dirty secret’. Everyone loves McDonald's (at least that's what the company is telling us). Even gay people. Even closeted gay people. And even clueless Dads.

It might seem odd that the company has chosen to portray a young man who is cute and confident, but at home at least, firmly in the closet. Why not present an out and proud gay character? One answer could be that the company is looking to represent a realistic picture of gay identity, not just a handy stereotype of sugar-coated camp beloved of Hollywood. It's also worth remembering though that back in 2008, McDonald's got itself in a bit of hot water back home in the US over its purported support of the gay community. Following a $20,000 sponsorship donation and the appointment of a McDonald's VP to the board of the National Gay & Lesbian Chamber of Commerce (NGLCC), the American Family Association (AFA) and other groups from the christian right called a boycott. The company had refused "to stay neutral in the cultural war over homosexuality" the AFA claimed, and was "promoting the homosexual agenda, including homosexual marriage."Eventually McDonald's duly pulled out of its support of the NGLCC.

 McDonald's American experience shows just how problematic it can be for companies to get involved in representing different minorities. It can place them in a world of identity politics that they are unprepared and ill suited to deal with. Promoting diversity or targeting the lucrative gay market may make good economic sense, but its also a political act with political implications. Pro- and anti- groups may both use corporations to help them achieve their political goals, just like the NGLCC and the AFA have. McDonald's may claim it is simply about diversity and inclusiveness but others see it as the frontline of identity politics.

So this may help to explain the somewhat ambiguous messaging of McDonald's"gay ad" in France. The company is putting out a welcome whether you're in or out of the closet, or even if, like the father in the ad, you don't recognise or support gay identity. Come as you are, as they put it in the campaign.

That said though, running the ad is quite a risk for a company still smarting from a controversial boycott that riled up a significant chunk of their core customer base in conservative middle America. As several commentators have suggested, the ad is unlikely to run in the US, but even so it's starting to cause waves, as this clip of Bill O'Relly shows. The company can hardly be pro gay in France and neutral in the US. At some stage, like it or not, the embracing of diversity means you just have to take some kind of political position. As much as companies like McDonald's may be more comfortable talking economics, they simply can't afford to ignore the politics.


Photo by Márcio Cabral de Moura. Reproduced under Creative Commons Licence

The tangled ethics of black economic empowerment

Following up form our last blog entry about South Africa, the latest issue of the magazine Ethical Corporation provides an interesting feature about he impacts of the black economic empowerment (BEE) policies in South Africa. Citing a recent report from Harvard economists that was commissioned by the South African finance minister Trevor Manuel, the article offers a damming verdict of the policy, which it suggests "is failing the poor of South Africa and not helping business... the policy designed to right the wrongs committed against the country’s black majority during apartheid is working only for a few"

'Reverse discrimination' always makes for some tense ethical debates, but in the South Africa case, the sheer scale of past inequities provided a powerful rationale for introducing some radical measures. Not everyone was completely convinced by BEE, but by going beyond simple hiring and promotion quotes to include a groundbreaking attempt to spread business equity and control to previously disadvantaged groups, no one could say that South Africa's leaders were not ambitious.

The evidence that seems to be emerging though suggests that perhaps they were too ambitious, particularly given the social, economic and political context that South Africa is faced with. The Harvard report points to corruption, personal enrichment, poor financing of BEE equity deals, and some pretty unrealistic targets as some of the key factors that have driven the scheme off the rails. Without sufficiently well-educated and trained talent to fill BEE places, quota programs have run into problems, whilst a skills shortage has been exacerbated by emigrating whites dissatisfied with the skewed labour market. Positive discrimination, if it is going to work, needs to take a root and branch approach that tackles the underlying conditions of inequality (education, poverty, health, and some of the institutional arrangements of business and society) alongside its attention to the symptoms.

BEE is far from a lost cause, and the latest report, whilst controversial, will provide some much needed oxygen to a debate that can all to easily collapse into anger, point scoring, and various forms of racism and political correctness. Supporting or criticizing BEE can sometimes come across as taking sides in a political debate, but ultimately the most ethical policies are those that actually improve people's lives in meaningful ways. So, upholding the moral purpose and principles of BEE is crucial, but clear sighted reform so that it has a greater impact on ordinary black South Africans may be the best, and the most ethical, way to go. Business and government will both have to play a part in making that happen.