14 May 2011

A Question of Quotas

By Sarah Wilshaw-Sparkes

A teaser clip for a British sitcom is playing on NZ TV at the moment. The pub owner, a man, is leaning on his bar and, with a self satisfied smile, telling a male patron, "I'm all for equality, I am. That's why I let my female staff work longer, so they can earn the same as the men."

It tugs a wry laugh from me every time.

When it comes to women's progress, be it on pay or promotion, you don't have to look far for other forms of twisted or simply faulty logic. In this article I want to focus on the issue of quotas, particularly quotas for women on boards. They've been back in the mainstream press in recent months thanks in part to Lord Davies' report in the UK on measures to increase women in senior positions and also to the Australian Governor General's support for quotas for women.

I won't review here the arguments for more diverse boards, and for women as one important expression of that diversity. The business case is well-established and the 'fairness' case is intuitively obvious. What is less clear is how to achieve boards with more women, and that is why quotas remain a core part of the debate.

Quotas? No thanks!

If you've ever read the vituperative Letters to the Editor, and the hostile forum comments whenever women-on-boards-quotas comes up, you'll know that the key reason they are denounced is that they undermine the well-functioning meritocracy that we have now. Impose quotas, we're told, and Boards will be forced to scrape the candidate barrel to find enough women; apparently, it's inevitable that these women will be inferior to the current mainly-male directors.

This scenario surely contains a lapse of logic.  None of the detractors ever bothers to cite research* that the status quo is in fact:

  • a meritocracy ie based on objective measures of desirable characteristics and not influenced by connections, affinity, familiarity or any other bias
  • well functioning ie successful in getting the best possible people hired

*(And if someone has cited it, do please send me the research link).

The thinking seems to be that because the current system presupposes economic rationality, and because there is the ultimate 'market' sanction of shareholder votes at AGM time, it somehow follows that directors' appointments are systematic, judicious, and unbiased in their pursuit of merit (however 'merit' may be defined).

As the Tui beer ad so eloquently puts it, yeah, right. Since 2008, one or two people have wondered aloud, and in writing, whether we have really had the best directors available. And if we have, if this is as good as it gets, heaven help us.

My Journey

Let me nail my colours to the mast. 18 months ago when I attended the Women on Boards conference in Sydney I was strongly against quotas. Why? Two predictable reasons:

  1. Because quotas meant any woman director would have to wonder if she had been appointed on merit or simply to tick a quota box. (Note - it never crossed my mind that I could look at male appointments and wonder which had been on merit and which to tick a Boys' Club box).
  2. Because Government mandated quotas would be just one more instance of the already rampant Nanny state telling us what to do.

And now I say: bring 'em on.

Why? Because I'm fed up.

Every time the NZ Human Rights Commission and the Australian Equal Opportunity for Women in the Workplace Agency publish their censuses of women's participation the stats grow more dismal - as you can see below. Australia's listed company boards have been heading backwards and so have NZ's Crown Companies. NZ's listed companies have, however, made progress of about 1.5 points every two years.

That particular statistic implies that if we women can just be patient until 2065 we will reach gender parity in the boardroom. By then I shall just about be receiving birthday telegrams from whoever is on the English throne. My daughter will have reached retirement age but her daughter, if she has one, could well be in line for a directorship. Goodness me, I'm very encouraged by that.

Directorships held by women (dates reflect report dates)
% ASX200:              2004 - 8.4%   2006 - 8.7%      2008 - 8.3%      2010 - 8.4%
% NZ Crown Companies:   2004 - 35.7%   2006 - 35.4%    2008 - 34.7%   2010: 32.9%
% NZX100:               2004 - 5.0%   2006 - 7.1%      2008 - 8.7%      2010 - 9.3%

Note - the ASX's mandatory requirement for companies, from January 2011, to report the gender diversity of their boards had, by late 2010, pushed up the number of ASX200 directorships held by women to 10.3%. Time will tell if this represents a new plateau or the start of a long run upward trend.

Refining and repeating the business case for women at the top is proving to be a necessary but insufficient call to action. The inherent and often unconscious biases are too powerful.

When you have a particularly resistant nut to crack, it's no good tapping it with a teaspoon. You need to bring in a very big sledgehammer...

Norway's positives

Logic dictates I research what has happened in Norway where, as many of our readers will know, the Government wielded its mighty sledgehammer to increase the number of women on boards. After a period of 'voluntary' targets had failed to shift the dial much between 2002 and 2005, the Government imposed a mandatory quota for 40% women on boards with 9 or more directors at state corporations and publicly listed companies (about 500 large organisations out of a total company population of over 150,000).  Failure to reach this level within the two year transition period to 2008 would spell rising penalties from fines through to company dissolution.

The 40% level was finally reached in late 2008, on the cusp of the deadline.

What has happened over these years? The Norwegian Institute for Social Research at the University of Oslo conducted the first major study of the impact of the quota law on boards in late 2009. [As reported on Women on Boards and Jump] the report found:

  • The new women directors are younger (72% are under  50 compared to 35% men)
  • They are slightly better qualified than the men (92% of women have at least one university degree compared with at 87% of men)
  • 75 % of female directors are independent compared with 45% of men
  • The fear of "golden skirts" (multiple directorships in the hands of a few competent women) was unfounded: 21% women have more than one directorship, versus 38% men.
  • Recruitment processes have not changed significantly and women are being recruited the same way as men - via professional networks and personal contacts.
  • The majority of male directors said that more women on the board led to new perspectives and more issues being added to the board agenda.

Norway's Negatives

On the downside, as reported in a study from the Ross School of Business by Amy Dittmar, associate professor of finance, the share price of some of the companies affected fell, and the greater the changes in board gender composition, the greater the fall.

Dittmar said:

The constraint imposed by the 40-percent women quota led firms to recruit women board members that were younger and had different career experiences than the existing directors. It is reasonable to suggest that these changes led to decreases in firm value because new directors did not have the same monitoring or advising capabilities of the other directors before the imposed change.

I have an alternative hypothesis. Since share prices reflect expectations of future performance, not a scorecard of the current situation, it may be that stockholders were worried by all the press about a forced influx of inexperienced directors. They opted to sell before the companies they'd invested in could go to the dogs.

Another issue that has concerned some commentators is that the increase in women on Norway's boards has not, so far, led to a trickledown (or pull through) effect into senior line-management. For now, women are entering Norway's boards via external advisory roles or internal staff positions, usually HR. There's a concern that the best and most ambitious women may bypass line management in order to access Board roles, and thus perpetuate the need for quotas.

Leverage

If we're aiming for more women in positions of influence should we even be focusing so much effort on increasing women on boards? As Jen Dalitz over at the SheEO blog cogently points out, getting women to hold 40% ASX200 directorships means about 800 women at best (remember the golden trousers will reduce the available number of directorships).  By contrast there are thousands upon thousands of senior management roles in the ASX200 companies. Increasing the percentage of those roles held by women by even ten points would have an absolutely much larger impact. The same logic would of course apply to the NZX100.

However, Dalitz agrees that the advantage of focusing on boards first is that it is easy to measure progress and is also an easily definable group.

I would add that a powerful positive of a significant jump in women in a leadership team like a board is that they quickly reach critical mass where their voices and ideas can truly be heard; research suggests 3 women or 30% is enough.  At that point they cease to look different and can start to be judged on their merits as individuals rather than on stereotypical expectations of only contributing 'women's points of view'.   For men who are uncomfortable at the idea of having women on their boards, the personal experience of constructive contributions from these women would demonstrate their value, and do so more convincingly than testimonials from the men who already 'get it'. In turn, this generates a rapid jump in the number of success cases and normalises the presence of women.

Alternatives

Are there alternatives to quotas that could achieve significant increases in senior women's numbers before I'm dead and buried?  I've been pondering a one liner I read on a forum that was vigorously debating women-on-boards-quotas. (One-liners tend to stand out amidst all the sound and fury).

What about equality of opportunity instead of equality of outcome?

That reminded me of studies of the positive effect of blind auditions for orchestras. Traditionally, women had been underrepresented in American and European orchestras. Renowned conductors asserted that female musicians had "smaller techniques", were more temperamental and were simply unsuitable for orchestras.

Proving discrimination in hiring practices, however, was always difficult until Goldin & Rouse (The American Economic Review, 2000) measured the effect of blind auditions. Use of a screen was found to increase a woman's chances of moving to second round auditions by 50% and "increased severalfold" that she would be selected in the final round.

Of course, being a director isn't the same as playing the clarinet. Equality of opportunity for board directorships would probably need to include:

  • Continued efforts to promote women into line management positions in order to prime a vital pipeline
  • Gender mix targets - another quota, in truth! - for those charged with developing long lists (these targets are increasingly prevalent, I believe)
  • Openly advertised positions instead of reliance on shoulder tapping (lobbying for this has been around a while)
  • Anonymous first round review of CVs

That's a challenging list.  In New Zealand, we've been working on the first three of those opportunity enhancements for some time and we know how little has changed in terms of outputs.

No - for me, it's still 0800-SLEDGEHAMMER.

What do you think?

Other recent resources and references

May 2011: Women on Boards: America is falling behind by Sylvia Hewlett

December 2010: An interactive map of Europe from the FT shows government policies on women-on-boards quotas as well as recent statistics

October 2008-2010: The "Women Matter" series by McKinsey

Comments (2)

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  • Tuesday, 17 May 2011, 01:15p.m. by Tove Allerbrand

    “Thank you, Sarah, for the thought-provoking piece. Like you, I'm inherently against quotas and for equal opportunity. But your logic is compelling. And my view is that if you 'get it right at the top' we should see the pull-through effect you mentioned on senior management as a consequence, hopefully without further need for quotas. Indeed, we may even see a positive secondary outcome in the form of an increased competency level of boards generally, as the entire selection process comes under scrutiny. ”

  • Tuesday, 14 June 2011, 07:56a.m. by Sharon Manssen

    “Yes, thank you Sarah. Loved the article. My first response is always "so, what can I do about this?" I remembered an article that we circulated around the women's group here at the office (NZ Herald - Women leaders offered a helping hand to climb the ladder by Gill South). Professionelle was referenced in it as stating that mentoring is a crucial piece of the puzzle, and I couldn't agree more. We don't all aspire to head a large organisation, but we still have valuable business skills. Perhaps we all need to look to get involved in the organisations in our locations that do this type of thing at a lower level, such as the YWCA Future Leaders Programme (for girls aged 14-18)?”

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