No simple panacea in gender quotas

No simple panacea in gender quotas

There is consistent thinking across many quarters that enforcing a quota for women on boards of directors is not the solution to ensure better representation - or at least inappropriate for now. The issue has reared its head amid several recent reports.

For example, women currently hold only 8.3 per cent of directorships on the boards of companies that are listed on the Singapore Exchange, the Gender Diversity on Boards report released by the Diversity Task Force in Singapore found earlier this year.

While this is an improvement from 6.8 per cent in 2008, the rate of change has been slow. At the current rate, the proportion of women-held directorships is projected to reach only 17 per cent in 2030.

The causes for the low percentage of women on boards are complex and intertwined, noted Mr Magnus Bocker, chairman of the Diversity Action Committee. Instead, it has been recommended that a dose of measures that target the root causes of the issue be allowed to run its course before revisiting the need for quotas in future.

Still, the latest Worldwide Women Public Sector Leaders Index report by multinational professional services firm EY (formerly Ernst and Young) found that women remain significantly under-represented in senior public-sector leadership roles across most Group of 20 (G-20) countries. This does not come as a surprise, given that only five countries in the G-20 - Canada, Australia, South Africa, Britain and Brazil - have over a third or more women in senior leadership roles across the public sector.

It is noteworthy that Canada, which led the index with women making up 45.9 per cent of senior leaders in government, has had a long journey in taking positive action to promote under-represented groups in public services. Since the early 1980s, there have been voluntary affirmative action programmes in both the public and private sectors. In the 1990s, these were given legislative force in the public sector, and later in industries regulated by federal government.

Also, in France, quotas on the number of women in senior posts introduced in 2012 seem to be having an impact as the share of female senior public leaders increased from 21 per cent to 25 per cent. In Germany, the federal government introduced a 30 per cent quota for women on the boards of DAX-listed companies last November. While there is no equivalent quota for its own civil service, the percentage of women in senior public leadership positions has increased from 13 per cent to 17 per cent in the last year.

The report by EY also found some broad correlation: Countries that have higher gender representation in senior public-sector leadership roles tend to also rank high on other indices that measure women representation on private-sector boards.

As for the issue of whether quotas are the way to go, the European Parliament looks to be pressing ahead with proposals to enforce a 40 per cent quota for female non-executive directors on the boards of large companies by 2020.

Yet, it is important that the focus on quotas for women does not distract from the fact that the push for women on boards is ultimately about realising the value of diversity. Diversity is not just about gender and includes many forms, including age, background, ethnicity, nationality and professional experience.

Nevertheless, as Mr Birger Magnus, who chairs numerous boards and holds non-executive directorships in Norway and internationally, said in an EY report, "gender diversity is a means to achieve diversity, and normally it does".

Whether quotas are eventually enforced in Singapore, Europe or elsewhere, there are several insights to be gleaned from precedents. Take the Norwegian quota for women on boards, which came into effect in 2008. While there has been some criticism of women who hold multiple non-executive directorships due to an apparent shortage of suitably qualified individuals, the quota has been generally regarded positively and its value was to be proven over time.

Suffice to say that having a quota has accelerated the process in getting women on boards in Norway. Yet the Norwegian experience also suggests that having a quota will almost always result in the race for the best female talent. The risk is then that some talented women may fall out of line-management positions in their companies and take up non-executive director roles before they have fulfilled their true potential.

This lack of strong management experience could potentially be detrimental to both the boards they serve and to the women themselves in their long-term careers. To manage this risk, companies should help their up-and-coming female leaders to acquire additional non-executive experience, while encouraging them to progress in their current roles. This, coupled with national programmes to train and develop board-ready women, will be instrumental in ensuring a sustainable pipeline of women talent.

For the right reasons

A myraid of research continues to affirm that having women on boards improves corporate performance in quantifiable ways, and challenges any attempts at paying lip service to the issue. For instance, a Credit Suisse study in 2012 had found that between 2005 and 2011, the average return on equity for companies with at least one woman on the board was 16 per cent - four percentage points higher than in companies with no women on their boards.

Further, interviews conducted by EY with board directors and chairs from across Europe, India and Africa have found that diverse boards are more likely to motivate a diverse workforce and executive team - creating a virtuous circle. And given that people from different backgrounds are tuned to different risks, then risk management is an area that can benefit from gender diversity.

For individual businesses, gender diversity also means relating better to a broad customer base, particularly for consumer industries where women are thought to control or influence 70 per cent to 80 per cent of all consumer spending globally.

Collectively, the issue must remain at the fore of every stakeholder in the industry. If we accept that healthy and sustainable capital markets are founded upon a strong corporate governance culture, which in turn is underpinned by diversity in all forms, then every single decision made today at the company level to push the gender agenda in the right spirit will be important in the long run.

Whether gender quotas are mandated then becomes less relevant a question. In any case, it is unlikely to be the panacea for the challenge on hand.

This article was first published on Nov 18, 2014.
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