Thinking About Gender Quotas in the Boardroom

A recent study involving thousands of public companies in 91 countries found a positive correlation between profitability and the number of females in senior management positions (including top executives and boards of directors). Despite this correlation, the study found that, as of 2014 approximately one-third of companies worldwide have no women in senior management; 60 percent have no female board members; 50 percent have no female top executives; and only 5 percent have a female CEO.

The availability of highly skilled women with relevant education has grown significantly over the years. Approximately 40% of students in leading U.S. business schools are women, and between 2002 and 2012, female enrollment in graduate business schools has increased by 3.2% per year on average. Nevertheless, women are underrepresented in studies that focus on mathematical skills and are less likely to pursue finance degrees. In addition, cultural norms still view women as the primary caretakers within the home. Females in top management positions, on average, spend less time in the office than their male counterparts and more time taking care of the family and household. These persisting educational patterns and cultural expectations may help explain why women are underrepresented in senior management roles despite strides towards gender equality.

Many countries have acknowledged this inequality and are taking measures to eliminate it. Norway enacted gender quota legislation in 2003, requiring public and state owned company boards of directors to have 40% female representation at minimum. The legislation imposed a very effective stick—noncompliance would result in a company’s dissolution. Whereas in 2004, women made up less than 16% of public company boards, by 2008 the figure reached 40%. It took a mere five years for Norway to achieve its target.

In 2015, after years of fruitless voluntary efforts and governmental nonbinding decisions, Germany joined Norway, France, Spain and a growing list of countries in requiring corporations to meet a quota for female board members.

In the United States, gender diversity among senior management roles is growing, but slowly. The percentage of female board members of the largest U.S. companies has increased from 15% in 2005 to just about 20% today. Some states have issued nonbinding resolutions recommending that corporations increase gender diversity and set minimum percentage goals. And, recently, Mary Jo White, chairman of the SEC, indicated that the SEC is examining the need for additional public company disclosures of gender diversity on boards. However, no U.S. legislature or agency has set any mandatory minimum quotas thus far, and no such legislation is being discussed in Congress.

Data shows that female managers help increase a company’s profitability and that almost half of the students enrolled in top business schools are women. Nevertheless, corporate practices of hiring senior executives and appointing board members may be colored with gender discrimination, or at the very least, are steeped in outdated patterns. Shaping a gender balanced corporate environment would not only promote a modern, just society with fair opportunities to both genders, but also would make sense financially. Typically, corporations are happy when optics and economics align. There is, therefore, strong incentive for the U.S. to embrace mandatory quotas for female representation in the boardroom.

Thinking About Gender Quotas in the Boardroom (PDF)