Articles from Cass Knowledge

Quota, unquota

Two Cass academics debate whether new legislation should even up the boardroom battle of the sexes.

The European Union is considering imposing quotas for women in the boardroom. Only 13.7% of directors of large companies within the EU are women; the figure falls to 3.2% for company presidents and chairwomen. Public consultation ended on 28 May 2012 and the European Commission will decide later this year on any action to be taken. But are quotas a step too far?

In favour
Dr Louise Ashley, Cass Visiting Fellow

The number of women on FTSE 100 boards is growing but the pace of change remains slow. Some business leaders and academics suggest that this is because women don't want to make it to the top or that men don't want them there. Both answers may hint at the truth, but neither explains what's taking so long. An alternative explanation is that the wish, often expressed by business leaders, to see more women at the top is real. However, they are less committed to making the quite dramatic changes to their organisations' structures and cultures that are needed to make this a reality.
To date, the main motivation for change has been the business case. This suggests that companies are missing out on talent by not retaining and promoting women, or that more women at the top would enable organisations to respond more effectively to customers and perhaps even encourage more ethical corporate behaviour. Yet whilst the business case is widely cited, the question remains - if the commercial benefits of boardroom diversity are so compelling, why has the problem not already been solved?
One answer is that significant change to organisational practices usually requires a sense of urgency - even, perhaps, a visible crisis. The evidence to date suggests that a voluntary agenda based mainly on commercial drivers has not been sufficient to bring this about.
Quotas, therefore, might be the most effective and efficient means of increasing the scale and speed of change. This strategy will not be welcomed by everybody, including the very women who may become directors as a result. However, the dominance of men at the top of our commercial organisations remains "situation normal". A mandated target might make the opposite true so that in future male-dominated boards will look decidedly odd.

Bob Garratt, Cass Visiting Professor
The debate on board diversity is skewed too much towards women and not enough towards experience and thinking styles. Two examples illustrate what happens when a mandated percentage of any type of director is forced on a board.
Norway imposed a 40% quota of women. The pool from which they were chosen was small but the demand was large, so many accepted too many directorial posts with the inevitable result that they were stretched too thinly to fulfil their role - and their fees rose noticeably. So the "golden skirts" came into being.
Demand for women directors continued to grow and, as the quota was backed by the legal threat of closing down companies that failed to obey the 40% rule, women directors were imported from other Nordic countries, with the knock-on effect of creating a shortage of competent women directors in those countries.
In South Africa the Black Economic Empowerment scheme produced a similar effect, giving rise to the "black diamonds", particularly in state-owned enterprises and listed companies.
From the legislators' viewpoint, imposing a mandatory percentage of a particular type of director is an easy win. They can tick the box and move on, claiming a success. But the consequences do not take into account diversity of experience and thinking styles to match the maturity and environment of a specific company.
In the UK, the 2006 Companies Act codified for the first time the seven specific duties of a director. While some are obvious, such as maintaining the law, not being corrupt and ensuring the success of the business, two are more difficult to deliver: ensuring the independence of thought of each director, and having the care, skills and diligence to fulfil a directorial role. These demand diversity in the boardroom and are beyond the capacity of any legislator to deliver. Yet they are more important in ensuring the success of a company than either sex or colour.