Will Quotas Help Women in Business?
A few months ago, an article on the academic gender gap at Harvard Business School sparked us to write our own piece on gender inequality in business (and in school). We looked at information from numerous sources on how women perform in school, in the boardroom, and in academia, and we found that, in all cases, there was something holding them back. Recent research highlighted in the Financial Times sheds some light on the subtle discrimination that may or may not still be taking place. While our brief investigation left no doubt in our minds that gender inequalities exist, we were still unsure as to what could be done to change them.
This week, an article in The Economist described the steps European nations are taking to give women in business a better fighting change. After recognizing that while women make up half the workforce, they only represent 10% of board members, European countries began passing laws that would require publicly listed companies to fill a quota of women in their executive seats. Variances on this law have already passed in Spain, Norway, and France, and Germany is currently considering one, as well. The aim of these laws, according to an EU representative, is to have 30% of European boards be comprised of females by 2015.
The driving idea seems simple enough “ greater diversity in the upper echelons results in better decision-making and better returns. Indeed, another article in The Economist discusses how McKinsey found that those companies with a larger number of women in senior positions benefit from a higher return on equity, fatter operating profits and a more buoyant share price. Supporters of gender quotas see this data as evidence they will succeed: more balance, more profit. Everyone benefits.
It’s an admirable goal, no doubt, but is it reasonable? For an issue as nuanced as gender inequality, quotas seem to be merely a surface solution, failing to take into account the individual make-ups and hang-ups of companies across industries. As The Economist so aptly points out, Quotas force firms either to pad their boards with token non-executive directors, or to allocate real power on the basis of sex rather than merit. It’s a top-down approach “ one that may cause more harm than good.
Consider Norway. Boardroom gender quotas have been in place there since 2006, and early findings show that they have actually had a detrimental effect on the companies who enforced them. Theglasshammer.com cites data from the University of Michigan’s study which shows that when a board saw a 10% increase in the number of women, the value of that company dropped 18%. This fall is attributed largely to the fact that, in order to meet the quota, boards were forced to recruit women who were younger and less experienced. The demand for capable women surpassed the supply and businesses suffered as a result.
Is that to say that the quota system will never improve the gender balance in business? Definitely not. We only wonder whether it will do anything to improve the underlying gender inequality. If quotas result in women being promoted prematurely and companies taking a loss, are we not further perpetuating the underlying causes of gender stereotyping? There is no doubt that business still has a long way to go towards gender equality, but it’s possible that there are better solutions than stacking boards to fill a quota.