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. 

Diversity in diversity management

You may remember that in one of our posts last month we asked what exactly made women different in a business ethics context. One of the big issues here is the "glass ceiling"that hinders women from getting to the top of the corporate ladder. Discrimination is often invisible but incontrovertible to those that encounter it.

To be sure, this is a problem faced by women everywhere, but at the same time, such institutional discrimination also varies quite significantly between countries. In our business ethics book, we reported on evidence of female held directorships in Europe - where female representation in the boardroom ranged from 0% in Portugal to 29% in Norway. So it was with some interest that we read in the Financial Times last week about evidence emerging of female board memberships in the Gulf region - an area not traditionally known as a leader in diversity management.

The picture painted by the report is of a region that, in terms of diversity management, demonstrates much like Europe quite a bit of, well ...diversity. Some Gulf countries are actually emerging as leaders in the region, with women making up 2.7 per cent of boards in Kuwait, and 3% in Oman. This not only compares favourably to other Gulf states, such as Abu Dhabi (0.6%) and Saudi Arabia (0.1%), but also stacks up pretty well against other ostensibly less conservative countries such as Italy (2%) and Japan (0.4%).

Of course, board memberships do not tell the whole story about gender discrimination in business, but it certainly gives a good flavour of the types of challenges facing women looking to secure advancement to the executive suite. So it's good to see some progress being made in the Gulf, and hopefully will act as a further spur for laggard countries in Europe and elsewhere. Who knows, perhaps even Italy's womanizing PM, Silvio Berlusconi will be able to prompt a greater attention to gender among Italy's boardrooms, especially having appointed the former model and (as the media puts it "ex-showgirl") Mara Carfagna, as Equal Opportunities Minister (pictured right).

But whatever progress is made in Italy or Kuwait, though, such countries will still remain far, far behind the leaders in female board membership. Right now, the place to go for high flying women is Norway, where women now make up 40% of board positions. But we're not talking voluntary social responsibility here; Norway's female friendly pattern is a result of good old fashioned regulation. As the International Herald Tribune reported a couple of months ago, it's not been a easy transition for Norway, but with appropriate mentoring, training schemes, support mechanisms and enforcement, a genuine change in attitudes seems to have accompanied the 2003 law that forced Norwegian companies to fill 40% of board seats with women. Such positive discrimination isn't always popular, but as the chart from the IHT shows, it certainly makes a difference.

So, what makes women so special?

This week on the website of the Globe and Mail newspaper, you can watch Scotiabank CEO Rick Waugh talk about why he thinks it’s a good idea to hire more women. Actually, what he says is not very spectacular, mostly that women are as good as men and often easier to get (as employees, that is…). Well, not exactly a daring observation. And that his company will work hard to raise the 33% share of women in executive positions. Nice intentions.

It goes to show though that equal opportunities for men and women are still an issue. Just think of all the talk about a woman now running for president in the US. It looks like we have come a long way, but there is still much to do.

It is interesting to see how this topic has become more and more an issue for corporations. In our forthcoming book ‘Corporations and Citizenship’ we have a whole chapter on the corporate role in reflecting, enabling or restricting identities of citizens. Gender is just one of many examples here. If we think about equal opportunities for women careers, issues like maternity leave, freedom from discrimination or harassment – it is mostly the corporate sphere where these issues are either respected or suppressed. In that sense then having a CEO talking about the issues is actually reflecting the simple fact that, yes, companies are nowadays centre stage in tackling these inherently political issues.

The debate also goes on in the academic community of business ethics scholars. Our book is one of the few that explicitly features the approach of feminist ethics. While we don’t do much more then summarizing the state of the art, this little section in Chapter 3 has ignited some debate recently. The question is really whether women are inherently different from men: is it correct to stereotype men as ‘rights/status oriented’ whereas women, in this school of ethics, are stereotyped as ‘care/relationship oriented’. With many of our younger (especially female) students our experience in the classroom has been that sometimes this sounds to them like grandmother talking about the war. Long gone are the heated debates on feminism in the 1960s where these theories gained currency.

As we said, we have come a long way here, but it seems there still remains a lot to be done. Both in understanding and appreciating gender diversity (without stereotyping), but also in addressing discrimination and prejudice. And it is in business, where most of these issues are the most hotly contested.