Boardroom quotas: some issues

European commissioners are thinking of demanding quotas for the number of women on company boards. This raises some issues.

Issue one is about selection effects. Imagine - which shouldn't be hard - a world in which there are very few women directors. A company which appoints one is therefore, by definition, unusual - perhaps in being more forward-thinking. And the woman it appoints is also likely to be unusual, perhaps especially talented. The data might then show that companies with women directors do well. But this is because of a selection effect that could go into reverse  if all firms were compelled to appoint women, some of whom might be mediocre. 

However, selection effects needn't work positively. They can be adverse. Let's grant that there's some evidence that women - on average - would help companies make better decisions by virtue of their gender, say because they are less overconfident, more risk-averse or have higher ethical standards. (Whether these differences are innate or due to social constructs is irrelevant for my point). It does not follow from this that companies that appoint women would be better-run. This is because the women it appoints might not have these feminine virtues but might instead have gotten to the top by virtue of being more ballsy than men. If this is the case, "free" appointments of women might actually reduce the amount of feminine attitudes on boards. By contrast, quotas - insofar as they compel boards to appoint feminine women - might actually enhance performance.

These competing selection effects might explain why studies of the effect of women directors upon corporate governance have been so ambiguous; some find a positive effect, some a negative (pdf), and some a U-shaped one. The question is: which selection effect would predominate if quotas are introduced?

The second issue is: why quotas? There are many possible ways of improving corporate governance: decentralizing management; having more worker-directors; preventing reckless takeovers; preventing narcisscists, sociopaths or psychopaths from becoming CEO; encouraging shareholders to exercise proper control, and so on. Why, of all the possible ways of improving corporate governance, should quotas for women be top of the list?

Thirdly, if there should be quotas to ensure boardroom diversity, why confine them to women? Why not quotas for ethnic minorities or gays?

One possibility is that women bring something to boardrooms that other minorities don't, by virtue of the gender differences I've mentioned. But as I've said, there's no guarantee that women appointees would necessarily possess such characteristics. If you want less overconfidence and reckless risk-taking on boards, why not mandate appropriate psychometric tests rather than worry about the shape of genitalia?

Which brings me to a final issue. I suspect that what we're seeing here is not so much an attempt to improve corporate governance as a paradox of equality - the paradox that, by the time a group is powerful enough to press for equality, the need for such equality has diminished.

The time when women most needed legal protection in the workplace was in the 60s and 70s, when they were "dollybirds" to be raped at will. But women then lacked the political power to achieve their rights. Only now are they are politically strong enough to demand laws to ensure their boardroom representation - and yet their economic position is strong enough that they can (up to a point) achieve such representation without the need for law.

I don't say all this to argue against gender quotas; anything that frustrates careerist men has something to be said for it. But let's not think this is much about corporate governance.

Comments

[Zorblog]

"Why, of all the possible ways of improving corporate governance, should quotas for women be top of the list?"
Because it is the most visible and easiest to implement. Most political decisions are based on that principle.

[Zorblog]

This quota issue tells a lot about how people consider Boards.

Suppose there would be an over-proportion of men among surgeons (which most likely is the case). Would that be a reason for demanding gender quotas across surgeons?
Would you feel confident then to undergo surgery performed by a woman? Or would you seriously question whether she got the job because of her skills, or because of quotas? It looks like surgery is too important for quotas, and the same reasoning applies to all professions with high responsibilities attached. So why shouldn't it apply to Board members?
Isn't it important to supervise a corporation, to look over the interests of the shareholders, to maintain jobs, sometimes by the thousands, and offer good products to customers? In theory, that's a huge responsibility. So why jeopardize the selection process with a quota mechanism?

The answer is I'm afraid quite simple: very few people believe that Board membership truly matters and that current selection processes are remotely adequate.

[FromArseToElbow]

Your first issue seeks to instrumentalise the question of gender balance on boards, suggesting that we should view quotas in terms of their effectiveness in improving corporate governance. But perhaps that isn't the point at all. Perhaps the reason for quotas is simply social justice. The real question, to be put to opponents of quotas, is what evidence do they have that greater female board membership would be a bad thing?

Your second issue/question then answers itself. Quotas demonstrably work in achieving greater balance, assuming that is all they are intended to do.

Your third issue, echoed by Zorblog, is to ask why we should stop at just women, or just at board roles. The point is that women, unlike gays or ethnic minorities, are not a minority in society. They are actually a slight majority. This means that the pool of potential female candidates is large enough that selecting a woman to satisfy a quota is not likely to oblige you to consider the under-qualified.

That may well be the case with surgeons at present, assuming that not enough women have qualified to date, but that would actually be an argument in favour of quotas being applied by medical schools, to ensure an equal supply, rather than quotas by hospital adminsitrators assigning surgeons to operations.

The more compelling case against quotas is that they would lead to a small coterie of existing female City insiders monopolising the roles, something which already happens with the informal pressure for PLCs to have at least one female non-exec.

However, a general quota would create a lot more demand, particularly if applied to total board membership (i.e. exec and non-exec), which would probably lead to many existing women execs being promoted to the board from within. If quotas are mandatory, most companies will probably feel happier selecting an insider: "she may be an injun, but she's our injun".

Board quotas may turn out to be the most effective strategy for breaking the traditional glass ceiling.

[Pechorin]

All this talk of women being "appointed" fails to pay even lip-service to the notion that boards are elected by the shareholders.

"Shareholder democracy" should mean that shareholders are free to vote for women, if they put themselves forward for election. Unfortunately shareholders are presented annually with a one-party list from a self-perpetuating board. It is as "democratic" as elections to the Politburo of the CPSU.

[chris]

@ FromAtoA: "Perhaps the reason for quotas is simply social justice." Really? On a list of social injustices, how far down does women's under-representation on boards come, even if we confine ourselves to just feminists' agenda?

[FromArseToElbow]

@Chris, where it comes on the "list" of social injustices is not the point. The proposed EU directive only addresses sexual equality in the boardroom. I'd happily vote for other injustices to be rectified first, but that's not on offer.

[paulteule]

@Chris, you make a good case here, but what, in your view, would be the best argument for women quota?

[David Ellis]

I wouldn't oppose quotas to break up the club of male chauvinists that block the promotion of talented women in favour of idiot relatives but the left must be more ambitious than that. It is time the indifferent shareholders and the Old School Tie Network robbers were brushed aside completely and the boards and senior managers of companies, departments, industries, hospital trusts, education boards, etc were elected by all grades of their workforces.

[Philip Walker]

I heard a particularly curious argument from a proponent of quotas on the radio recently.

She said that 60% of recent graduates are female, so that shows that we need more women in the boardroom. The first thing is a fact, and I happen to the agree with the second statement. But one can only connect the two if one thinks that we should be appointing recent graduates to the boardroom.

Only a politician could think this makes good business sense.

Surely what women need is an environment in which it is possible for them to have children and a career. Generally speaking (though of course exceptions always can be found) women who rise to the heights don't have children. For men, children don't affect career prospects so much. *That's* where the sexism is, not how many women are board-level directors.

[Anon of Not Searched]

I wonder if support for quotas is dependent on board room positions being perceived as not requiring specialised skills? You could make a better equality argument for quotas in more common high paid jobs, but most people would be troubled by quotas for surgeons....

(I work in IT. We have almost no women, but we do really really really try. The ones we have are often brilliant, but overall women just aren't interested in working in our industry :-( )

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[criticism of socialist feminism]

Ya,this case is very interesting one and a perfect one to show the dilemma of difference, in which both treating women the same as men and offering special treatment on account of women’s special needs can re-entrench differences oppressive to women.Great post!

[criticism of socialist feminism]

sorry for the above comment..i was reading a different post and by mistake posted here.For this post i would like to say that whenever it comes to women's equality and rights,there are always some issues that obstruct.This is what i don't like at all.