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Quotas for Women on Corporate Boards: The Call for Change in Europe

©2015 Textbook 43 Pages

Summary

The debate for higher female representation on corporate boards has become particularly intensive during the recent financial crisis. Scholars advocate that women are more risk-averse, more engaged with longer-term issues and tend to draw more attention to governance and ethics. Thus, it is suggested that due to the behavioural differences between men and women, more gender-balanced boards would have prevented a number of financial collapses. This assertion has triggered more detailed analyses of current statistics for women on boards in the European Union. A number of states have implemented various non-binding measures for improving female representation on boards. This brought them acclaim, yet no discernible results. Should we indeed insist to have gender-balanced boards, we need quotas. Evidence is of strong support.

Excerpt

Table Of Contents


8
The first country to look at the problems of women on boards was Norway, already in 1981,
where a female quota for directors appointed by the government was introduced as a result.
9
Two decades later, in 2003, Norway decided to extend the application of quota law to all
listed limited liability companies by requiring firms to reach 40% representation of each
gender on boards.
10
However, in 2005 the progress showed only 17% women on boards,
which prompted the Government to enhance the law by introducing sanctions.
11
As a result,
the percentage of female directors on the boards of Norwegian companies grew up to
approximately 40% by 2008.
12
Although the outcome in Norway did receive attention
worldwide and particularly in Europe, it was not until very recently that it became an
example to follow.
The accelerated process of electing more women on boards started with a number of
voluntary initiatives. In Europe, several countries referred to their Corporate Governance
Codes so as to emphasise the need for improving gender equality on boards. In that regard,
the UK Government appointed in 2011 Lord Mervyn Davies to prepare a review of the
ongoing trends in hiring women on senior positions. As a result of the Davies Report several
recommendations for increasing the share of women on boards were announced and later
implemented in the revised UK Corporate Governance Code in 2012. The UK is a firm
supporter of the concept that higher female representation should be achieved by voluntary
measures only. In their view this should be realised by combining the efforts of the
government, business and non-profit organisations.
The European Commission has also been very active in proposing various endeavors that
promote more women on boards. Initially, the Commission also relied on self-regulation. In
2011, Viviane Reding launched a meeting with the CEOs and chairpersons of the biggest
listed European countries in order to consolidate efforts in appointing more female directors
as well as to discuss what measures would potentially increase gender balance.
13
The meeting
followed after the Gender Equality Strategy, issued by the Commission in 2010, which
highlights the possibility of introducing quantitative targets across Europe.
14
Furthermore,
9
M.Bertrand
et al, `Breaking the Glass Ceiling? The Effect of Board Quotas on Female Labour Market Outcomes
in Norway'(2014) <https://www.utexas.edu/cola/_files/jd25763/norway_boards_5_2014.pdf>accessed on 31
August 2014.
10
ibid 7.
11
Ibid.
12
ibid.
13
EC, `EU Justice Commissioner Viviane Reding meets European business leaders to push for more women in
boardroom'(1.03.2011) Press Releases Database <http://europa.eu/rapid/press-release_IP-11-
242_en.htm?locale=en> accessed on 31
August 2014.
14
ibid.

Commissioner Reding encouraged listed companies to join the "Women on Boards Pledge
for Europe", which was a voluntary initiative for increasing the share of women on boards up
to 30% by 2015, and to 40% by 2020.
15
However, the pledge was signed by 24 companies
only, thus raising the prospect that soft regulation does not provide significant progress in
reaching the stated goal.
16
As a consequence, in March 2012 the Commission organised
consultations in order to discuss the effect of the pledge and the progress following the
measures, undertaken by companies.
17
The outcome was a non-binding resolution on
"Women and Business Leadership" of the European Parliament, approved in July 2012.
18
Yet, as reported by scholars, all these voluntary measures lead to marginal improvements
only. Hence, it became clear that only very decisive actions might boost the share of women
on boards. In line with this view, at the end of 2012 the European Commission proposed a
Directive on Gender Balance, which targets a 40% female representation on boards by 2020.
The Proposal was jointly supported by Viviane Reding, Antonio Tajani, the Commissioner
for Industry and Entrepreneurship, Joaquin Almunia, the Commissioner for Competition, Olli
Rehn, the Commissioner for Economic and Monetary Affairs, Michel Barnier, the
Commissioner for Internal Market and Services and Laszlo Andor, the Commissioner for
Employment and Social Affairs.
19
The main rationale endorsed in the proposal is the notion
that the low female representation on companies' boards leads to large economic losses, as a
huge pool of experience and talent is left under-utilised.
20
The commissioners further
expressed the view that achieving gender balance is of crucial importance for resolving the
increasing demographic problems in Europe, as well as a key factor in maintaining Europe as
a major player in global competitiveness.
21
If we indeed want to see more women on boards, quotas seem the only way to achieve it.
Thus, the main thesis advanced in this research is that quotas are the most effective tool,
which could bring more women on boards as they represent a direct mechanism to change the
15
Reding (n1).
16
Reding (n1).
17
M.Visser, `Advancing Gender Equality in Economic Decision-Making"(2011) Centre for Inclusive Leadership
(Background Note. Conference: Equality between women and men)<http://ec.europa.eu/justice/gender-
equality/files/conference_sept_2011/background-paper-decision-making_en.pdf> accessed on 31 August 2014.
18
ibid.
19
EC, `Women on Boards: Commission proposes 40% objective"(14.11.2012) DG Justice. Press Release
<http://ec.europa.eu/justice/newsroom/gender-equality/news/121114_en.htm#Press>accessed on 31
of August
2014.
20
EC, `Proposal for a Directive of the European Parliament and of the Council on Improving the Gender Balance
among Non-executive Directors of Companies Listed on Stock Exchanges and Related Measures'(14.11.2012) <
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2012:0614:FIN:en:PDF> accessed on 31 August
2014
21
ibid.

10
current status quo and bound by sanctions they deliver quick and feasible solution. The
European Commission is taking the right step by proposing a Directive on Gender Balance
on company boards. Criticism is there, yet unsubstantiated. Women are often being
discriminated for their allegedly insufficient expertise or education, as well as blamed for
compromising board proficiency. Nonetheless, empirical evidence shows that women do
bring value to companies, increase the educational level of boards and shareholders benefit
from their presence.
Alternative routes, including voluntary measures for bringing more women on boards, prove
to be deficient, lacking potency and expediency. The evidence from the United Kingdom, as
well as from several other European countries like Malta, Portugal and Poland, lends support
for this assertion. Most indicative, however, is the significant gap in Norway between female
representation on corporate boards, which is mandated by law, and female representation in
top management, which is not.
The rest of the book is organised as follows. Literature review proves that women are
beneficial for boards and makes a strong case that the efficiency of women on boards should
be enhanced through implementing quota law. Subsequently, the debate is transferred to what
are the general advantages and weaknesses of quotas as a legal tool and how they could be
overcome. Next, a detailed review of what the experience of other countries in Europe with
quota laws is, focusing primarily on the outcome of Norwegian quota law as the first country
to introduce such legislation. The final section concentrates on exploring other possible
approaches for increasing women on boards and provides a summarised overview of the main
dominances of quota law over any voluntary measures.
2.Why more women on boards
Since the early 1980s, when the topic for women on corporate boards first became subject of
academic and policy discussions, the debate has grown considerably.
22
A number of countries,
particularly in Europe, have undertaken legislative steps for remedying the gender imbalance
on corporate boards in light of a likely new EU directive. The upcoming EU Directive will
take this further, however there are still a significant number of commentators who insist that
22
Z.Burgess and P.Tharenou, `Women Board Directors: Characteristics of the few'(2002) 37 Journal of Business
Ethics 40.

more women on boards do not bring significant value to company boards.
23
Their analyses
strive to show that the increase in female representation at the Board is not associated with an
increase in company value or profitability.
2.1.Are women smart enough
In line with the concept of strategic engagement of the Board of Directors in managing the
company, the perspective that women bring in the boardroom in the decision-making process
is of crucial importance. The main argument is that women usually come from a different
background than their male fellow board members and respectively contribute with this
diverse experience.
24
As a result the set of skills, knowledge and expertise of the whole board
team is significantly expanded, thus bringing more viable alternatives and leading to more
efficient decisions.
25
As Nielsen and Huse note, the results of a number of studies show that
the professional experience of women differs significantly from those of men. Particularly,
women usually do not possess the streamlined business or financial background typical of
their male colleagues, however women often hold advanced academic degrees and have
acquired a broader range of competences.
26
Furthermore, it is suggested that more female
representation on boards is crucial from a market perspective, as their varied background
represents a broader range of customers and employees.
27
In addition, the empirical literature finds that diversity is important for innovation as well as
for the research and development in companies.
28
In support of this notion, Torchia, Calabro
and Huse conduct a study in Norway ascertaining that Boards with a higher diversity
perform better in terms of organisational innovation.
29
Furthermore, it is argued that larger female presentation on boards is beneficial for Board
dynamics. While most studies concentrate only on the fact that women have a positive effect
23
K.Ahern and A.Dittmar, `The Changing of the Boards: The Impact on Firma Valuation of Mandated Female
Board Representation'(2012) 127 Quarterly Journal of Economics 188; S.Fitzsimmons, `Women on Boards of
Directors: Why Skirts in seats aren't enough' 2012 55 Business Horizons 564.
24
D.Dalton and C.Dalton, `Women and Corporate Boards of Directors: The Promise of Increased, and
substantive, participation in the post-Sarbanes-Oxley era'(2010) 53 Business Horizons 261.
S.Nielsen and M.Huse, `Women Directors' Contribution to Board Decision-Making and Strategic Involvement:
The Role of Equality perception'(2010) 7 European Management Review 17; S.Bear at al, `The Impact of Board
Diversity and Gender Composition on Corporate Social Responsibility and Firm Reputation'(2010) 97 Journal of
Business Ethics 210.
Nielsen and Huse (n25) 19; D.Bilimoria, `The Relationship between Women Corporate Directors and Women
Corporate Officers'(2006) 18(1) Journal of Managerial Issues; R.Burke, `Women Directors: Selection, Acceptance
and Benefits of Board Membership'(1997) 5(3) Corporate Governance 123.
K.Campbell and A.Minguez-Vera, `Gender Diversity in the Boardroom and Firm Financial Performance'(2008)
Journal of Business Ethics 439-440.
Nielsen and Huse (n25) 17; Bear at al (n25) 210; Campbell and Minguez-Vera (n27) 440.
Torchia et al, `Women Directors on Corporate Boards: From Tokenism to Critical Mass' (2011) Journal of
Business Ethics 299-300.

12
on the atmosphere and the working environment in the Boardroom,
30
Adams and Ferreira
examine the behavior of the women and their findings show that female representation on
boards is highly correlated with board attendance.
31
Their study demonstrates that women are
more often present at board discussions, but also provoke more responsible male behavior;
and in general board attendance is significantly improved if there are more female directors.
32
2.2 Are women tough enough
Following the outline of the main board's tasks female representation on company boards
should be considered in the context of their monitoring function. The empirical evidence in
this regard is still evolving. Fitzsimons finds that women are tougher in monitoring than men
and perform better their duties in protecting the shareholders interest.
33
In their empirical
study Adams and Ferreira report that it is more likely for women to serve on monitoring
committees of Boards, particularly in regard to their participation in the directors'
compensation packages and retention proposals.
34
Their findings are consistent with the view
that higher female representation on boards has a positive correlation with more equal-based
and result-orientated incentive packages to managers, thus not allowing shareholder value to
be disrupted.
35
Furthermore, Terjesen, Sealy and Singh find that women are more willing to participate in
board performance assessment tasks.
36
Women are also found to provide more initiatives on
corporate evaluation, as well as to develop working board instructions.
37
The case for more women on boards is further enhanced by the effect of utilising their
interpersonal skills. Konrad, Kramer and Erkut find that the strongest argument for their
board participation is the discussion process. In their research they reveal that there is a high
probability that women ask difficult questions and raise issues that are of interest to more
stakeholders.
38
Moreover, women would insist on clarifying the motivation of the
management if there are some controversial topics, thus resulting in better - argued outcomes
Torchia
et al (n29) 304.
31
R.Adams and D.Ferreira, `Women in the boardroom and their impact on governance and performance'(2008)
94 Journal of Business Economics 292.
ibid.
33
ibid 293.
Adams and Ferreira (n31) 301.
ibid 303.
S.Terjesen
et al, `Women Directors on Corporate Boards: A Review and Research Agenda' (2009) Corporate
Governance: An International Review 327.
Nielsen and Huse (n25) 18.
Konrad
et al, `The Impact of Three or More Women on Boards' (2008) 37(2) Organizational Dynamics 159

and in improving the monitoring process.
39
2.3.Do women have superior intangibles
A shared view in the literature is the positive effect that more women on boards have on the
reputation of companies. Particularly, this result is seen with regard to the corporate social
responsibility activities of the firms.
40
As stated earlier, women often come from non ­
executive backgrounds, thus providing a more social perspective to strategic decisions, which
reflects into more support for minority groups and different communities.
41
Therefore, female
representation on boards is considered essential for developing social responsibility activities
and thus broadening the potential consumer base for the company. Moreover, high corporate
social responsibility performance of companies is perceived beneficial from shareholders
perspective as it boosts the reputation of the corporation.
42
Another area on which the academic debate concentrates is the hypothesis that female
presence on boards has a significant input in reducing agency costs, thus leading to increasing
shareholders value.
43
Jurkus, Park and Woodard find that higher gender diversity could
substantially benefit companies in terms of resolving agency problems, particularly in
corporations where strong corporate governance mechanisms are absent.
44
Their study
focuses on firm's performance in relation to decreasing agency costs, thus providing evidence
that female presence has a positive impact in the process.
However, as also noted by Adams and Ferreira, this hypothesis is defined by a certain
limitation, namely that in corporations with already established good corporate governance
practices, too intense monitoring on behalf of female directors would effectively result in
diminishing short-terms profits of shareholders.
45
From the behavioural perspective, it should be added that women are in general considered
more risk-averse than men, as research reveals that men and women act differently when
investing or taking other economic decisions.
46
Therefore, the positive outcome of such an
Ibid 156; Fitzsimmons (n23) 561; Bear
et al (n25) 211.
Bear
et al (n25) 210; I.Boulouta, `Hidden Connections: The Link between Board Gender Diversity and
Corporate Social Performance'(2013) 113 Journal of Business Ethics 188.
Bear
et al (n25) 210.
Ibid.
Adams and Ferreira (n31) 304.
Jurkus
et al, `Women in Top Management and Agency Cost'(2008).
<http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1085109> accessed on 31
August 2014 2.
Adams and Ferreira (n31) 305.
M.Liersch, `Women and Investing: A Behavioral Finance Perspective' 2013 Wealth Management Institute <
https://www.paychex.com/a/d/white-papers/advisors/women-investing-behavioral-finance-perspective.pdf>
accessed on 31 August 2014.

14
approach results in preventing companies from rash investments or decisions. This
conjecture has been strongly supported in the course
of the recent financial crisis through a number of anecdotal cases.
47
However, the evidence for the favourable influence of women on boards should be
considered in the context of a few caveats. Firstly, the results of the study conducted by
Konrad
et al reveal that female representation on boards benefits companies the most when
there is a critical mass of three or more women on boards.
48
They do not contest that firms
benefit of even one or two women on the board, yet underline that a group of them has more
significant influence. The same finding is corroborated in the survey by Torchia et al in
2011.
49
This stylised fact is originally noted by Kanter
50
and later supported by Adams and
Ferreira, who posit that having just a token female representation on boards could lead to
unsatisfactory outcomes.
51
Several researchers have also observed that the better results from women's participation in
the boardroom are highly correlated with the intensity of their engagement as well as the
frequency of them voicing concerns during board meetings.
52
2.4.Who is afraid of women on boards
Undoubtedly, the drive for more women on boards is coloured by a number of negative
opinions. Amongst the most cited arguments against larger gender diversity on boards,
particularly against quota imposition, is the view that if companies are legally forced to hire
more women, it is highly probable that they will compromise the skills and experience of the
directors.
53
However, this assertion can be easily rebutted by exploring the number and
experience of women who are eligible for appointment as board directors. Recent research
shows that their number has significantly increased in the recent years, as more and more
women complete advance academic degrees and gain experience in the corporate world.
54
The results from exploring the correlation between female's participation on boards and
firm's performance are so far inconclusive. Although a number of surveys show positive
E.Kang,
et al, `Investor Reaction to Women Directors'(2010) 63 Journal of Business Research 889,892.
Konrad
et al (n38) 160.
Torchia
et al (n29) 311.
50
R.M.Kanter, `Some Effects of Proportions on Group Life'(1977) 82(5) American Journal of Sociology.
51
Adams and Ferreira (n31).
52
Torchia
et al (n29), Adams and Ferreira (n31).
53
Fitzsimmons (n23); Ahern and Dittmar (n23).
54
Bertrand
et al (n9).

interdependence, particularly in the return on investments and the return on assets,
55
the
empirical evidence is mixed. In their study Adams and Ferreira conclude, for example, that a
beneficial link between gender diversity and company performance exists, yet it is
distinguishable only in the cases when corporations suffer from weak corporate governance
practices.
56
On the contrary, they claim that within companies with well - established
mechanisms over-monitoring could lead to a decrease of shareholders value. Similarly, Ahern
and Dittmar, when using Tobin's Q test, suggest that biases from hiring more female
directors could indeed bring about negative tendencies in the stock price of the companies.
57
One possible explanation for the lack of consistent outcome of the studies on firm
performance might be the fact that the favourable impact of more women on boards has
several dimensions.
58
Moreover, it seems that the large interdependence between gender
diversity and firm performance could differ by country and legal and corporate tradition. For
instance, an event study conducted in Singapore by Kang, Ding and Charoenwong, concludes
that investors react positively on a higher female representation, particularly if they
contribute for the independence of the board.
59
Therefore, it might be stated that although the
inconclusive link between female directors and firm performance is mostly regarded as a
substantial drawback for the notion for more women on boards, future research might present
a more coherent picture.
A more recent attention is drawn by academics to the suggestion that boards indeed might not
benefit from more active participation of women in the boardroom, as their different views
might provoke conflicts in the course of taking decisions and make the process more time-
consuming and ineffective.
60
However, the role of the well­functioning board is to be
constructive and to lead to the most successful strategy and result, not merely to pass
decisions smoothly.
As can been seen, evidence against more women on boards is rather weak. It raises concerns,
however they all could be overcome through a more comprehensive research. Therefore, it is
easily concluded that the benefits that women bring on boards considerably prevail over any
possible drawbacks.
Erhardt et al, `Board of Directors: Diversity and Firm Financial Performance' (2003) Corporate Governance
104.
Adams and Ferreira (n31) 292.
Ahern and Dittmar (n23).
58
Kang
et al (n47) 889.
59
ibid.
60
D.Lau and J.K.Murninghan, `Demographic diversity and faultlines: The compositional dynamics of
organizational groups' 1998 23 Academy of Management Review 329.

16
3.The 40% Objective
Provided that the academic community and business leaders agree that corporate boards
benefit from higher female presence, the recent debate is concentrated on how to achieve this
result effectively. The European Commission has taken a leading role in this process, first
suggesting several recommendations for increasing women's board in 1984 and 1996, as well
as providing several strategies, which highlight the benefits of women's presence on boards.
61
However, the figures still show slow and unsatisfactory improvement, with an average of
13.7% female presence on corporate boards in 2012.
62
Experts at the Commission noted that,
if the rate at which women are joining boards, remains the same in the coming years, they
will account for only 20.4% of the boards by 2020.
63
Thus, to achieve a more efficient and
rapid result Commissioner Reding proposed the Gender Balance Directive
64
(hereinafter "the
Directive"), which was approved by the European Parliament in November 2013, and is
expected to be voted by the European Council. In essence, the Directive aims to achieve 40%
presence of the under-represented sex as non-executive directors on corporate boards of all
listed companies by January 2020 and for companies, which are public undertakings by
January 2018.
65
Following the precedent, established by the European Court of Justice
66
, the
Directive strives to promote this as a result of "a comparative analyses of the qualifications of
each candidate by applying pre-established, clear, neutrally formulated and unambiguous"
67
appointment criteria. The legal basis for the Directive is found in Article 157(3) of the Treaty
on the Functioning of the European Union (TFEU),
68
which states that the European
Parliament and the European Council should implement measures in order to guarantee that
men and women are equally treated in regard to career opportunities as well as paid equally
for equal work.
69
According to Article 6 of the proposed Directive, the Member States are
obliged to implement effective and proportionate sanctions in case of breach of the Directive,
as well as to deliver regular reports on the progress of the measures every 2 years, which the
61
EC, `Impact Assessment on Costs and Benefits of Improving the Gender Balance in the Boards of Companies
Listed on Stock Exchanges'(2012) Staff Working Document Accompanying the Document <http://eur-
lex.europa.eu/resource.html?uri=cellar:c8463a34-787f-4cc8-890a-dc7f4f85c55b.0001.02/DOC_1&format=PDF>
accessed on 31 August 2014.
62
EC, `Improving the gender balance in company boardrooms' 2014 <http://ec.europa.eu/justice/gender-
equality/files/gender_balance_decision_making/boardroom_factsheet_en.pdf> accessed on 31th August 2014.
63
EC (n61).
64
EC (n20).
65
ibid.
66
ibid.
67
ibid.
68
ibid.
69
European Treaty on the Functioning of the European Union, Article 157 (3)(2012) <http://eur-
lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:12012E/TXT> accessed on 31
August 2014.

Details

Pages
Type of Edition
Erstausgabe
Year
2015
ISBN (PDF)
9783954899234
ISBN (Softcover)
9783954894239
File size
250 KB
Language
English
Publication date
2017 (October)
Grade
Merit
Keywords
Woman European Union Justice corporate governance gender diversity female representation quotas for gender diversity EU Directive on Gender Balance
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