Gender Equality in the Boardroom - Are Quotas the Answer?

Women might make up nearly 50% of the workforce in developed nations, but that doesn’t mean they’re fairly represented at higher levels. When it comes to board positions, parity is still a long way off. In the West, women in business make up an average of about 25% of board positions, with European, and particularly Scandinavian countries, performing better than the USA (19% in 2014).

Unsurprisingly, the countries with the worst female representation tend to fall in the Middle East, or in less economically developed nations. In India, women make up only a quarter of the workforce, and only around 8.6% of boardroom positions are taken up by women. Possibly the worst performing nation, however, is Japan, which despite having the world’s third-largest economy and a working population that’s 42.7% female, women still only make up 2.6% of board seats.

Globally, women only make up around 4% of board chairs - a pitiful number. The majority of S&P 500 boards are still at least 66% male and only 14.2% of company boards are more than 30% female. It’s not all bad news however, there are more women on UK boards than ever before and there are no longer any all-male boards in the FTSE 100.

Pushes to include more women in business

The issue of female underrepresentation in boardrooms is very controversial, and many governments are doing what they can to convince businesses to increase the fairness of female representation. Some countries have begun to include mandatory diversity quotas, while others are setting ‘targets’, but without any disadvantages, if they aren’t hit. Norway, Iceland and Finland (regularly voted among the best countries in the world to be a woman - Norway is the world leader, with almost 50% of its boardroom positions held by women) have all implemented quotas and had nearly double the average number of women on boards than in countries which had not implemented those measures.

Sweden had proposed an introduction of fines for companies which did not reach a target, but earlier this year the plans were voted down and scrapped. Despite this, the nation is still one of the fairest countries in Europe for gender parity in the boardroom and women in business.

Ireland’s female boardroom rate currently stands at around 16% and the National Women’s Council of Ireland have called for quotas in the country to ensure a fairer female representation in business. In Australia, the Australian Institute of Company Directors has suggested that fining businesses for failing to hire appropriate numbers of women could be the only way to tackle the ‘boys club’ within business.

These measures are going some way towards gender equality but the battle is uphill, with many suggesting that equality is still decades if not centuries away.

What effect do women have in the boardroom?

A more diverse boardroom being beneficial for companies is often touted as evidence that companies should improve their equality, but whether any of the claims are true is debatable. There have been a series of studies carried out to work out the effect more diverse boardrooms have, with many of the results used to convince businesses to improve their numbers. According to a Catalyst report, Fortune 500 companies with higher representation of female board directors achieved higher financial performance than those with lower representation. The President of Catalyst, Ilene H. Lang, commented on the matter:

“Clearly, financial measures excel where women serve on corporate boards. This Catalyst study again demonstrates the very strong correlation between corporate financial performance and gender diversity. We know that diversity, well managed, produces better results. And smart companies appreciate that diversifying their boards with women can lead to more independence, innovation, and good governance and maximize their company’s performance.”

A survey by CIPD found that 89% of business people think that gender diversity can improve boardroom effectiveness, with the strongest reasoning being that women can bring a different perspective to discussions and decisions. Another study, “Women in the boardroom: One can make a difference”, of women in Canadian companies found that higher corporate governance scores were found in companies with more women on their boards of directors. While companies with three or more women had the highest scores, those with just one woman showed a significantly higher score than those with none.

Not all the research points in this direction though: Professor Alice Eagly, of Northwestern University, disagrees with many of the findings and called the studies ‘naive’. Her argument is that many of the studies show correlation, not necessarily causation. For example, it may be that companies which are financially more successful also prioritize gender parity - it’s not necessarily the parity that’s causing financial success.

Perhaps more significantly, some studies have found that in countries where women have more equality, their presence on boardrooms has a better impact on the company’s performance. This suggests that the culture of a company is much more significant than the numbers themselves. Having more women in the boardroom will not necessarily make any difference if they are not being listened to or their opinions are not valued as equal.

Erika Watson, the director of Prowess, an online hub for female-orientated business support, agrees with this sentiment: 

"There is a powerful economic case for introducing boardroom quotas. Companies make better, long-term decisions and generally perform better. Entrenched interests mean that it's a process of change that will take too long if it's left to happen organically. Sometimes positive social and economic change needs a helping hand. But in many countries, this level of affirmative action for those at the top is becoming disconnected from meaningful equality of opportunity for women at the executive level and below. Quotas will only work if they are part of a deeper process of workplace accessibility and acceleration for women at all levels."

Regardless, whether or not a more diverse boardroom or more women in business increases profits is a red herring and a detractor from the real issue. Companies ought to be hiring people fairly and meritocratically because they’re fair and meritocratic, not because it might increase their profit margins. That means tackling discrimination wherever it’s found.