Nevertheless, women are still under-represented in executive suites and board rooms. However, if women are as qualified for management as their male counterparts, the low female share of board members reflects a huge loss of talent and educational investment to both individual firms and the economy. Issues of fairness and equal opportunity also argue for political regulation and affirmative action policies.
Since , several European countries have introduced radical gender quota regulations for their largest companies, and the European Commission has considered EU-level binding quotas for company boards. While the main political arguments for quotas are based on fairness and equality of opportunity, this article looks mainly at economic outcomes.
It discusses the economic theory and empirical research on the potential effects of gender diversity at the board level and the relationship between gender diversity and firm performance. Though the quota has now been binding for ten years, it is still too early to evaluate all of the long-term effects of this policy.
Theoretical arguments on gender diversity and firm performance There are several theoretical arguments for gender diversity and a more balanced composition of executive and supervisory boards. Diversity could improve the quality of the decision-making process compared with a more homogeneous board. Women directors might add new perspectives to board discussions or have a better understanding of the market than men do. Women in top management positions can act as role models and mentors, with a positive impact on the career development of women at lower levels. Finally, there is the talent pool argument for economic efficiency.
If only men are viewed as potential candidates for the board, but men and women are equally qualified, boards will be of lower quality than if the best men and women were selected. Board quality is taken to be reflected in the organization's efficiency and productivity, so a larger pool of potential candidates for top positions will have a positive economic effect.
However, there may also be negative effects of gender diversity. A more gender-diverse board might experience more disagreement and conflict, resulting in long, drawn-out discussions—a serious problem when a company needs to react quickly to market shocks.
There could also be communication problems if the executives of the company are reluctant to share key information with demographically dissimilar directors, which could compromise board efficiency . The theoretical arguments on costs and benefits take on an extra dimension when quotas are binding. If a company already has an optimal board composition, imposing a binding quota for a larger share of women will alter the board composition to one that is no longer optimal. Another argument against quotas is that in many countries the proportion of women in top executive positions is low—though growing—so there is a limited pool of female candidates.
Until the pipeline widens, companies will either overburden the small number of qualified women or accept less experienced candidates. In many countries gender diversity is encouraged but not required. Since such guidelines are not always followed, the effect is weaker than with mandatory regulation with sanctions for non-compliers .
The proportion of women on major corporate boards is currently much lower in many EU countries Figure 2 , so these quotas, if met, would have a large impact on gender composition . In the sometimes heated debate on affirmative action and gender quotas, claims are often made that gender diversity has a positive effect on the bottom line. Studies showing this positive result have had a large impact in the media . However, a number of these studies have shortcomings.
They point to correlations between the proportion of women on the board and firm performance but do not prove causation and they typically ignore even the most obvious background characteristics. The results of empirical research on the economic efficiency impact of gender diversity on corporate boards are also unclear. Some studies show a large positive effect, whereas others find negative outcomes.
The reasons suggested for this ambiguous picture include:. Variations between countries and between types of firms could mean that having more women on the board is advantageous in some circumstances but not in others. For instance, institutional differences between companies can affect the role of the board. Some studies have focused on large publicly listed companies, while others have included small and medium-size companies, which are often family owned. It is difficult to design research that reflects all relevant variables. Many studies show a positive correlation between the proportion of women on a board and firm performance, but correlation does not prove causation or provide evidence of its direction.
It might not be the presence of women that improves performance but rather that better performing companies choose to appoint more women. Or the companies might have another shared characteristic either observable or unobservable that both leads to better performance and prompts them to improve gender diversity. When researchers allow for other observed characteristics, the positive relation found in the simple models often disappears. Outcome measures differ. Some studies focus on economic performance measures, while newer studies also consider whether gender diversity affects board decisions and processes.
The impact of gender diversity in a country with no quota regulations and a low proportion of women on boards is likely to be very different from the impact in countries with a binding quota. The survey tested a number of hypotheses about the impact of women on decisionmaking. Women with nontraditional professional experience those who have not held senior management roles in commercial companies were found to have a weak impact on board decisions. Women with strong ethical and moral values were found to have a strong impact. In cases where a male majority on the board considered the female appointees to be less qualified, the women had significantly less impact in the boardroom.
Finally, more women on boards increased the involvement of the board of directors in the strategic decisions of the company. A study of US corporate boards found that boards with a larger percentage of female members had better attendance rates: having women on a board improved the attendance of men. Gender-diverse boards were found to be tougher in monitoring management and more prepared to fire the CEO when company performance was poor.
Firms with diverse boards often included incentive schemes in management compensation packages. Norway was the first country to introduce binding gender quotas for the largest Norwegian companies. The short-term effects on firm performance of this Italian quota seem to be minor or insignificant . The following focuses on the Norwegian quota since the potential full impact of a quota on firm performance, company structure, and the position of women in general, takes time.
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Norway is the only case for which there is some empirical evidence on these broader and longer-term effects. In that sense, the law was a clear success. But research studies reached different results, some finding a negative impact, and some finding no significant impact, except in the poorest-performing companies. One of the studies found a negative impact of the higher proportion of female board members on several economic performance variables .
These effects were most pronounced in the companies with the fewest women on their boards before the law came into effect. The crucial point in the estimation strategy in this study is that the pre-announcement gender composition was already reflecting an expectation about a future binding gender quota.
Whether this was actually the case has been criticized . Another study that found a negative impact used a slightly different sample of Norwegian firms and compared their performance with that of large companies in other Nordic countries . This study also found significant negative effects: companies were slower to adjust employment to cyclical upturns and downturns.
However, the study has been critized for not being able to tackle potential statistical problems in a convincing way . A potentially negative effect of the quota law is that it could prompt ASA companies to delist from the Norwegian stock exchange to avoid the quota obligation .
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This effect is not easily assessed because companies delist for multiple reasons. The research findings differ, partly because some studies include the financial sector while others do not. Some financial companies delisted because of other institutional changes during the period when the gender quota was introduced. A positive effect found in the literature is that a much larger proportion of the female board members in Norway after the quota were found to be independent, i.
Other studies have found insignificant or slightly positive effects of the Norwegian quota.
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Thus, research results do not agree and there has been a heated discussion between researchers on methodological issues and results . However, all these findings concern only the short-term effects, since the law has been in effect for only ten years. The effect might well be different over the longer term, perhaps because firms may be able to make board appointments differently or will have a larger pool of qualified women to select from.
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The Norwegian minister who sponsored the law made it clear that the longer-term objective is to have a better gender balance in senior management, achieved through a diffusion effect rather than through quotas, as more women assume positions of executive responsibility. The longer-term effects of the Norwegian quota are analyzed in a recent study . The results are not that optimistic, in the sense that, besides having an effect on female representation on boards which were subject to the quota, there have been no observed trickle-down effects of the quota on the Norwegian labor market.
The quota regulation has not yet reduced the gender gap in management positions in any significant way. Further, the quota does not seem to have affected the career aspirations, career plans, and behavior of young Norwegian women, which may have consequences for the future pool of potential directors on Norwegian boards and top executives.
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