Are quotas the solution to ensuring gender diversity on boards?
by Nicole Wiedman and Brianna Guenther
After attending a DirectHer Board Basics workshop – you’re left with many revelations, one of them: gender diversity on corporate boards is woefully lagging. Boards are nowhere close to gender parity: in 2019 women held 24.5% of the board positions for Canada’s 500 largest corporations by revenue as determined by the Financial Post 500 (“FP500”)[1]. Furthermore, most corporations have not even achieved the less ambitious target of having a critical mass of women on their boards (a critical mass of women is considered to be a minimum of three women); globally only 36% of boards indexed by MSCI[2] had at least three women.[3]
As a highly motivated individual (an assumption made from simply attending the workshop in itself), you’re likely wondering how this problem can be fixed. An increasingly popular solution is the idea of implementing quotas. Unlike many European countries, Canada does not have a legislated quota for gender representation on corporate boards. Canadian securities regulators do, however, require non-venture companies to disclose information regarding gender diversity (the number and percentage of women on its board, whether they have targets for gender diversity, whether they have policies related to the nomination of female directors etc.).[4]
According to the Conference Board of Canada’s Annual Report Card 2018: Advancing Diverse Leadership on Canada’s Corporate Boards,[5] in 2018, 43.7 % of FP500 director respondents reported that their board has a target for the number of directors that are women. Of interest to readers given Alberta’s presence in the energy industry, the percentage of director respondents from the Mining/Oil/Gas sector who’ve indicated that their board currently has a diversity target, increased by 13.4 percentage points between 2018 and 2019.
While these disclosure requirements aid in increasing transparency and focus on the matter, the slow progress of actual representation begs the question of whether we need something more (i.e. targets) to get this show on the road.
While undeniably, countries with compulsory quotas have increased gender diversity on boards, the concept remains controversial. An article by the Gender and the Economy provides a detailed look at the pros and cons when it comes to establishing targets for female representation; some of which we’ve summarized below. Please check out their entire article for their more detailed elaboration of these points; and more.
Reasons against Establishing Quotas
· Real or Perceived Injustice. Many people believe quotas to be unfair; a slight against meritocracy.
· Stigma. Even if the board quotas work, women’s influence may be diminished if there is a perceived notion they only got the job because of a quota.
· Undermines Intrinsic Growth. Some worry that if the change doesn’t come from within (i.e. a corporation’s genuine commitment to gender diversity) the external coercion of quotas will be limited to their most narrow reading. In other words, while it may result in increased women on boards of directors, genuine commitment to diversity throughout the company as supported by policies and programs may not exist.
· Fails to Address Systematic Reasons for Lack of Diversity. Similar to the point above, targets can be seen as a band-aid to a problem that deserves attention at the root cause. What about diversity at other levels of the organization? Is the discrimination at those levels addressed with board quotas?
Reasons for Establishing Quotas
· Fears are Unfounded. Interestingly, interviews conducted by Harvard Business review found that generally speaking hostility towards quotas came from those countries that don’t have quotas, but enthusiasm came from those countries that do have them.[6] Norway, for example, has a 40% female quota – and although there was much opposition to the quotas at first – directors now indicate their fears were unfounded and that women have improved the decision- making process.
· Qualified Women Exist. Countries contemplating quotas may fear that there aren’t enough qualified women to fill the quotas, however the Norway example shows that when companies are forced to look outside their traditionally male and insular network and “expand their one-dimensional picture of what [a] board member should be”not only are qualified candidates discovered, but the definition of leadership expands to be more inclusive.[7] Further, in the 2018 ARC, 91.3% of reporting FP500 directors indicated they knew 2-6 FP500 board ready women.
· No Stigma. Stigma resulting from the quotas didn’t materialize as a concern in those countries where quotas resulted in women achieving “critical mass” (i.e. because having three women on the board normalized their presence – as opposed to being hyper visible or invisible as the token female).
· Substantial Positive Effects. According to the Gender and the Economy brief (citing research by the Cambridge University Press) “a critical mass of women on boards can lead to several benefits in terms of board governance, including more robust deliberation, disruption of groupthink, more effective risk management, higher quality monitoring of management, and more systematic work.”[8] Women often bring experience from traditionally underrepresented skillsets (human resources, marketing etc.); and more importantly a diverse way of thinking to help ensure robust decision making.
We want to hear from you – what do you think?
Are quotas a good idea?
Is there a moral imperative to get this done? Or are the cons too significant?
Should quotas be considered for expanding corporate board diversity beyond gender?
[1] Canadian Board Diversity Council, Annual Report Card 2018: Advancing Diverse Leadership on Canada’s Corporate Boards (PhaseNyne, 2018)
[2] MSCI is an independent research firm that develops global equity indexes.
[3] Olga Emelianova and Christina Milhomem, Women on Boards: 2019 Progress Report (December 2019): p. 5, as reported by https://www.catalyst.org/research/women-on-corporate-boards/
[4] National Instrument 58-101 – Disclosure of Corporate Governance Practices
[5] Canadian Board Diversity Council, Annual Report Card 2018: Advancing Diverse Leadership on Canada’s Corporate Boards (PhaseNyne, 2018)
[6] Wiersema, Margarethe, and Marie Louise Mors. “What Board Directors Really Think of Gender Quotas.” Harvard Business Review. Harvard Business Press, 14 Nov. 2016.
[7] Dhir, Aaron A. “What Norway Can Teach the U.S. About Getting More Women Into Boardrooms.” The Atlantic. Atlantic Media Company, 4 May 2015.
[8] Dhir, Aaron A. Challenging boardroom homogeneity: Corporate law, governance, and diversity. Cambridge University Press, 2015; as cited by https://www.gendereconomy.org/the-debate-about-quotas/