Diversity and quality in corporate boardrooms are higher in nations with stricter quotas, according to findings from City, University of London Business School (formerly Cass Business School).
In a recent study, City’s Dr Sonia Falconieri, together with Montpellier Business School’s Dr Moez Bennouri, examined boardroom composition over 14 years in three countries with different approaches to quotas:
- UK In this jurisdiction, the 2011 Davies Report recommended a soft, voluntary ratio of at least 25% female representation on FTSE100 boards. In 2015, that was amended to 33% and the FTSE250 were advised to hit the same target by 2020.
- France Gender quotas implemented in 2011 required listed and non-listed firms of more than 500 employees, and revenues above €50 million, to have a minimum of 20% female representation on their boards. That rose to 40% in 2014. Failure to comply incurs voided board appointments and suspended payment of attendance.
- Italy Quotas came into law in 2012 requiring publicly listed companies to have at least 20% of either gender on first renewal of their board of directors, and 33% after the second renewal. Failure to comply results in large fines and even potential voiding of directorships.
The researchers found that the introduction of regulations was the single largest catalyst for a rise in female board presence: a rise that was significantly sharper under the mandatory regimes of France and Italy.
A further study showed there was no drop in board quality in cases of high diversity – indeed, in several firms, quality improved where quotas were mandatory. (City, University of London Business School, 8 July 2020)
Falconieri said: “Boardroom diversity is crucial to the success and sustainability of an organisation. There is a risk that the current pandemic crisis could see countries that do not enforce quotas on gender diversity take a large backwards step in terms of female representation in the boardroom. Our study demonstrates that businesses are more compliant with gender diversity regulation if it is enforced.”
She noted: “In addition to this, we find no evidence to suggest that the quality of boardrooms, normally associated with effective monitoring, deteriorates under this mandatory regulation. Despite this, gender quota regulations have not yet had an overall positive impact on the appointment of female executives or board chairs, which remains a great challenge and an obstacle to gender equality.”
Do City’s findings show that the UK needs its own mandatory quotas?
The Institute of Leadership & Management’s head of research, policy and standards Kate Cooper says: “This research makes a compelling case for the importance not only of setting quotas, but of regulating them in a meaningful way. The fact that, over the study period, there was no deterioration in board performance, but actually an improvement, would suggest that quotas and enforcement are absolutely the correct direction of travel.”
Cooper notes: “I don’t really understand why people resist quotas. At a time when we’ve been shown with unmistakable clarity that we need rapid, agile responses to the unexpected – and that those responses are best informed by different perspectives – the underlying rationale for diversity is stronger than ever. We’ve already heard a great deal about the disproportionate effect that Covid-19 has had on women in terms of job losses. And one factor that became incredibly clear from the beginning of lockdown was the ‘double-burden’ that women have faced, as a result of domestic responsibilities such as home-schooling piling up onto work-related tasks.”
She adds: “With all that in mind, pushing for greater female representation at board level is an effort on which we cannot afford to slip backwards. Anyone who’s inclined to resist this effort would do well to remember the ridiculous excuses for low female board representation that FTSE 350 chiefs bandied about more than two years ago, as revealed by the team behind the Hampton-Alexander review [UK Government, 31 May 2018].
“Please, let’s not go back to those embarrassments. Let’s acknowledge that we need more diversity and ask ourselves how we’re going to achieve it, rather than make spurious excuses for failing to do so.”
For further insights on the themes raised in this blog, check out the Institute’s resources on appreciating diversity