Gender equality quotas miss the mark
Last week revealed the results of Norway’s ‘gender quota’ law for corporate boards which was implemented in 2003 and then co-opted by the likes of Italy, Germany and France, in the name of achieving gender equality and empowering women in the workplace.
The law mandates a female quota of 40 per cent on boards of public limited companies and punishes noncomplying firms with deregistration or the threat of dissolution.
The results show that complying companies were punished as well … with a 12 per cent decline in their profitability, according to research published in Leadership Quarterly which found negative effects on accounting-based performance, return on assets, operating income divided by assets, and market-based performance.
So what went wrong? And could this be a sign that recruiting women is a bad idea?
In fact, the same study found that recruiting more women to boards had some advantages. Women directors, it found, were more likely to be risk-averse than their male counterparts which partially explains the profitability difference.
Less risk means less reward.
This is good news for lenders and is already recognised by the market: comparable data from the US, which doesn’t mandate quotas, shows that more women on management boards is correlated with higher values for corporate bonds.
It’s also good news then for companies or industries which prioritise risk mitigation over short-term profits.
In her 2011 book ‘Womenomics’, Claire Shipman notes that “companies that have both men and women in leadership positions have a higher return on their investments”.
London Business School research similarly suggests that men and women working in tandem can boost productivity since gender parity undermines ‘groupthink’ and might encourage more thorough and critical decision-making. Again, these are ideas already recognised by profit-driven companies.
A McKinsey survey recently determined that more than 70 per cent of companies that made efforts to empower female employees in emerging markets either experienced or expected to experience increased profits as a direct result of those efforts.
The problem isn’t women. It’s the unmeritocratic and draconian quota system. While the law naturally boosted female representation on public listed Norse companies, it also encouraged many to go private.
The number of public companies in Norway dropped from 452 in 2008 to just 257 by 2013. This resulted in less opportunity for everyone: board positions declined from 2366 to 1423 over the same period.
Companies desperate to fill seats and satisfy the quotas were confronted by a dearth of qualified women applicants, forcing them to hire individuals who might otherwise have been rejected based on their skills or experience.
What’s the point of socially engineering ‘demand’ by force when the ‘supply’ isn’t there? The small group of high-achieving women already close to the top found themselves in high demand. For the rest of the workforce, quotas seem to have done virtually nothing.
As reported by The Economist, the system “had no discernible beneficial effect on women at lower levels of the corporate hierarchy”.
Despite quotas at the board level in Netherlands and France, the percentage of women in management just a level below remains low: just 10-20 per cent.
Instead of intruding in a business’s ability to choose the best people for the job, policymakers keen to empower women should consider the incentives that those with the ambition and skill need.
This is especially true when women are more likely to prioritise family life over work life by opting to work fewer hours, take a less demanding role, or leave the workforce to raise children.
While making childcare less costly with the right regulations and by creating more competition in the sector is part of the solution, so too is tax relief. Women, especially married women, are far more sensitive to tax incentives to work, take more hours, move to full-time work, or re-enter the workforce, than men are.
The third stage of the government’s tax cuts package then, is especially welcome. Eliminating the tax brackets between $40,000 and $200,000 is a sure-fire way to reward ambition, productivity and hard work as career-oriented workers, especially educated women, re-enter the workforce or move up the pay-scale.
All while maintaining the system’s progressive nature and continuing to ensure that those at the top bear a proportionately higher tax burden.
Mandatory quotas hurt businesses, especially small enterprises, by preventing them from making optimal choices and forcing them to lower their skills or experience requirements. They hurt women by suggesting that they achieved their positions through quotas and not on their own merit. And they insult our collective intelligence by treating a symptom and distracting us from meaningfully addressing its root causes.
This article appears in The Daily Telegraph on 10 July 2019.