Apr 27 2012

The Case for Female Quotas

By kelly eggers

The Justice Commissioner of the European Union, Viviane Reding, has become the face of gender equality.

A longtime advocate of getting more women on European corporate boards, last year Reding asked companies to voluntarily meet her targets: 30% women by 2015 and 40% by 2020.

Since then, a total of 24 companies across the EU have complied. Thus in March, as the EU's senior policy maker for citizens' rights, she proposed taking action to mandate quotas, something several European countries, including France, Norway and the Netherlands, have already done.

After years of trying to encourage corporations to increase the number of women on their boards without much result, more diversity advocates are supporting mandated quotas. Europe is ahead of the U.S. on the issue, but signs are emerging that even in America, patience for voluntary change is wearing thin. In 2010, the Securities and Exchange Commission began requiring that U.S. companies disclose their protocols for encouraging diversity on boards, though "diversity" was left undefined.

In 2006, Norway mandated that boards have 40% of their directors be women and since 2009, most companies have met that target. While studies differ on whether or not having women on a board makes a company more successful, the Norwegian public has accepted the need for quotas, according to a survey from the Friedrich-Ebert Foundation, a German political organization. So, too, does the British public. An study by the EU this year showed that 75% of those surveyed in the U.K. support legislation to bring gender equality into the boardroom.

Don't Like Quotas

The general consensus among women's leadership advocates can be summed up by Reding, who told the New York Times, "I don't like quotas, but I like what the quotas do." Most women say they'd prefer to see companies voluntarily bring women into board seats, but the reality is that they aren't—at least not without being legally bound to do so.

"There are so many people who are tired of this conversation, tired of reading about it," says Selena Rezvani, a consultant for Women's Roadmap and author of "The Next Generation of Women Leaders." "I think quotas are a more aggressive way" to initiate culture change, she says, "but they're also a more efficient, faster way to get there."

The near imperceptible growth in the number of women on boards is what's pushing people like Reding to call for mandated quotas. Almost 40% of the world's largest companies have zero women seated on their boards, according to a survey from GMI Ratings. European countries saw just a 1.9% growth in the number of women on boards between October 2010 and January 2012, according to the European Commission.

"At the current rate, it would take more than 40 years for women to hold 40% of the board positions in Europe's publicly traded companies," says Dee Soder, an executive coach with New York City-based CEO Perspective Group, citing a statistic introduced by Reding last year.

The growth in the number of women filling executive roles in the U.S. has essentially stagnated, according to women's advocacy organization Catalyst. Since 2006, the percentage of women holding leadership roles at Fortune 500 companies has grown from 14.6% to 16.1% today.

"There has been a little bit of progress, but not a lot," Soder says.

The calls for having more women on boards stem from the perception that strength in numbers will fundamentally improve how corporations are governed. A 2006 study from the Wellesley Centers for Women found that three women serving on a corporate board serve as a sort of "tipping point," initiating fundamental change. "One woman is a 'token,' two, there is a little more support, but with three, the conversation changes," says Betty Spence, president of the National Association for Female Executives.

"It's not enough to have one token woman," Rezvani says. "In fact, that can be the distraction, because she is so noticeably different. That makes you understand where the Europeans are coming from in terms of the numbers they have mandated."

Qualified Women

The issue, however, is that the lone woman at the top becomes a sort of fallback plan. "If they have a female, it's the same female who broke through 20 years ago," says Soder. "She's qualified and very good, but companies aren't making an effort to target other people."

Qualified women are available to fill quotas on corporate boards, says Spence. Many are leading corporate divisions that are actually larger than some smaller companies. "There are detractors who say there aren't the number of women we need to make quotas successful, but I don't buy that for one second," says Spence.

"You don't need to have a person who is the CEO of a company, because the truth is, that is probably still a man," she says.

Still, some argue that quotas by another name might be more appealing. "What I think is working better is more of a target," says Rezvani, such as those set at companies like Coca-Cola and Procter & Gamble, which "tie executive compensation to that executive's track record of promoting women upward."

Will quotas ever find their way into American corporate culture? A McKinsey survey from 2010 found that while 72% of executives believe there is a correlation between gender diversity and business success, only 28% consider it a top-10 priority for senior leadership. "The business community in the U.S. has shown a long-standing objection to government interference when it comes to how their businesses are run," says Mark Rogers, founder of Board Prospects, a website that connects prospective board candidates with nominating authorities.

What will change the outlook, Rezvani says, is a change in the priority American companies place on board diversity. "It's really interesting—the more 'lackadaisical' approach about having women on boards here than in Europe," says Rezvani. "There is a lack of urgency here."

Write to Kelly Eggers at kelly.eggers@dowjones.com

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