Questioning quotas

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Professor Ruth Sealy – Associate Professor in Organisation Studies at Exeter University Business School

 

 

 

In the past five years, we have witnessed a huge turnaround in attitudes to gender balance in corporate leadership in the UK and across several countries. As in many other developed economies, women make up almost half of the UK workforce and the majority of university graduates.

In some subjects, such as law and medicine, this has been the case for more than 20 years. And yet, across industries and sectors, the number of women in leadership positions remains woefully small. In the UK, we have been monitoring the proportion of women on boards in the top FTSE-listed companies since 1999. In the decade following, the figure rose slowly from seven per cent to 12.5 per cent, where it plateaued. Other countries, such as the USA and Canada, also witnessed a stagnation around 15 per cent, reflecting what psychologists called ‘homosocial reproduction’, the often unconscious desire to ‘hire in one’s own image’.

Experts often try to explain the lack of women’s progress at one of four levels: at a micro individual level (that individual women are somehow lacking in ability, behaviour, or motivation); group level (that it’s about group dynamics and being uncomfortable with difference); organisational level (that there are structural issues around the way that work works, which disadvantage certain groups); or macro societal level (that we struggle still to see women as leaders, which contradicts our preferred nurturing, communal social roles for women). The truth is, it’s all of these, a complex and multi-level problem, with no one quick-fix solution.

Before 2010, there were a number of ‘myths’ that were commonly trotted out. The first, rather wishful, one was that we just needed to give it time and the situation would sort itself out. But a decade of longitudinal data had proved that this would not be the case, and that if one were to follow the trajectories, it would be another 70 years before parity was reached. The second myth, which I was told by many a chair or executive search consultant, was that suitably qualified and experienced women simply could not be found. Data provided by myself and colleagues, in the form of a list of more than 2,000 women
in senior roles across listed companies, in 2009, disproved that one.

From 2007 onwards, many of the large professional service firms produced reports revealing the positive financial benefits both to organisations and national economies of having more women in the boardroom and senior management. Multiple academic papers also attempt to argue for or against better financial returns from having gender balanced boards. Frankly, these are now so abundant that you will find whatever it is that you want to hear. However, in 2015, a definitive meta-analysis (study of studies) of 140 academic articles, in arguably the top academic management journal, found a positive relationship between accounting returns and female representation and this relationship is stronger in countries with stronger shareholder protections – possibly because those boards are motivated to take account of the diversity of background, experience, values and knowledge that different board members bring.

There is almost no relationship between female representation and market value and a negative one in countries with low gender parity. However, the authors find that there is a strong positive correlation between female representation on boards and a board’s two main responsibilities: monitoring and strategy involvement. Interesting that it appears there is this slight ‘Catch 22’, whereby companies only benefit from women on boards in countries with attitudes that are ready to receive them!

“Businesses view quotas as a radical change agenda, often misconstrued, causing emotional rather than rational responses”  

Utilising female talent enables fresh perspectives to be brought to boards, with often greater attention to governance and attendance. Other research suggests they may bring different values into the boardroom, more benevolence and less power orientation. By improving diversity of thought, for independence, so that views don’t go unchallenged, research tells us that decision-making is better, albeit harder to get to, with a broader range of perspectives on issues, such as company performance, strategy and risk.

But for this to happen, attitudes must change. Changing attitudes is incredibly challenging and so several countries have decided that to get a faster result they would try to change behaviours first and hope that attitudes follow. And so, it is that today 14 countries have some form of quota legislation on women on boards and a further 16 have some corporate governance ‘comply-or-explain’ approach. In the UK, history and academic evidence showed that this situation would not change sufficiently through organic processes. In 2010, the coalition government commissioned a review into women on UK-listed boards.

The review committee, headed by Lord Mervyn Davies, took a proactive, evidence-based, multi-stakeholder ‘voluntary business-led approach’ and set a stretch target of 25 per cent women on boards by 2015. Amid outrage of ‘interference’ and ‘unachievable target’, the Davies report laid out 10 clear recommendations of actions for stakeholders, including search firms, chairmen, CEOs, investors and the Financial Reporting Council, and a trajectory of progression that would enable the target to be met. Having risen only five percentage points over the previous decade, from 2011 to 2015 it more than doubled from 12.5 per cent to 26 per cent. The target was achieved without the need to implement a quota.

Now the UK is considered a role model by other countries of how to achieve progress on this issue without using quotas. And yet, all the stakeholders involved agreed that such change would not have happened without the threat (from both the EU and the coalition government) of further intervention. Businesses view quotas as a radical change agenda, often misconstrued, causing emotional rather than rational responses. But why do we believe that business acts rationally? Organisations are only made up of humans and humans are guided by bounded rationality. If they were entirely rational we would not have market failure, which we clearly do, when so much female talent is under-utilised. Although different countries are using different models of quotas with varying sanctions, the one unifying characteristic is the conflicting rationales, logics and often ethical tensions that surface. But why should the idea of quotas provoke such an emotional, often vitriolic response? Along with a colleague, Professor Siri Terjesen, I have considered just this.[1]

We found three main areas of tension: the motivation for quotas; the legitimacy of quotas; and confusion around the outcomes of quotas.

Motivation refers to the underlying rationale for quotas. Is it one of justice or utility? Interestingly, both arguments are used both by supporters and opponents. Supporters argue for better use of female talent and justice for gender equality. Opponents argue firms should be free to use whichever talent they wish and justice that any individual should be able to get a board position, regardless of gender. And are organisations motivated to change due to considerations of compliance or integrity? Interestingly, and perhaps experienced by many UK boards recently, symbolic change (i.e. playing with the numbers) can often lead to more substantive, unintended cultural change. In addition, as in the UK, the threat of a quota is sometimes sufficient to effect change, but in other countries quotas without sanctions effect little change.

The question of quotas’ legitimacy often revolves around principals of ethicality and meritocracy. Quotas can symbolise both inequality and equality in a national context – how do we justify a policy that may want to prevent and compensate previous injustices, but uses discrimination? This is the dilemma of the shackled runner. If, after a race has started, you realise that one runner is in shackles, do you stop the race and simply remove the shackles and tell the runners to continue, or do you bring the previously shackled runner up to the same level as the unshackled runner before continuing the race? To be legitimate, quota interventions must be an accepted part of societal norms and values. But this may be a chicken and egg situation, requiring change to be introduced first and justified later. Otherwise if multiple stakeholders are responsible for the continued problems, it is not always clear who should legitimately be involved with ‘fixing’ it.

Quotas offend our belief in meritocracy, but all the data shows that we do not live in a meritocracy. Individual women often reject quotas as they don’t wish to be a ‘token’ and female candidates for directorships are often urged to have many additional qualifications, to prove their legitimacy, in a way not required of men. Yet we know from research that perceptions of female directors’ legitimacy shift once women comprise a critical mass – usually operationalised as three women directors on a board. The irony is that tokenism, and the negative group dynamics that follow, occurs when there is just one woman, or ‘different’ candidate, on a board. When quotas are introduced, greater gender balance becomes the norm and women’s views are perceived as more legitimate, as those of just another individual. So, unless we really believe that men are better qualified for leadership, quotas become a rational, legitimate response to structural barriers, ensuring greater meritocratic outcomes.

The other big problem is that we struggle to define a successful outcome of a quota – whether to focus on short-term quantifiable metrics or longer-term somewhat more ambiguous measures of culture-change. Another issue is the level of measurement for the quota or target – for example, in the UK the 25 per cent target achieved was at an aggregate level across the FTSE 100, meaning that while some companies have 45 per cent female directors, others have less than 10 per cent. Different stakeholder groups are differentially affected by quotas and rarely agree on desired outcomes – for example, for shareholders, equity outcomes are inconclusive and causality directions unknown. However, most agree that post-quota/target boards have higher levels of functioning, leveraging new perspectives and more engaging discussion.

“Unless we really believe that men are better qualified for leadership, quotas become a rational, legitimate response to structural barriers, ensuring greater meritocratic outcomes”

Quotas or targets have been successful in increasing the numbers of women on boards in some countries (e.g. Norway, France, UK), but not so in others (e.g. Spain, Netherlands). But there is some disquiet that the increase has only been in non-executive directorships (NED). Across much of Europe, boards operate a two-tier system and the quotas were only aimed at the supervisory board, so this outcome should not be a surprise. In the UK, we have a unitary board and while most of the gain thus far has been in NED roles, in 2015, after several years of stagnation at five to six per cent, the proportion of female executive directors finally began to rise to currently 10 per cent.

The goal of increasing executive directorships and developing the female talent pipeline through senior management is the remit of the next government-backed review. The (Sir Philip) Hampton- (Dame Helen) Alexander Review has not only taken on the 33 per cent women on boards target for all FTSE 350 companies, but also a target of 33 per cent for FTSE 100 executive committees and their direct reports, by 2020. This is a bold target, but in essence follows many of the larger banks, professional service firms and other companies (such as Lloyds Bank, RBS, KPMG, PWC, BHP Billiton, GSK, Clifford Chance, Ashurst), who have led the way in publicly setting targets for themselves at levels below the board. This has been one of the greatest impacts of the Lord Davies Review – the acceptability of the use of measurable objectives to effect gender change.

So have our attitudes changed in the UK to women on boards? I would venture to say that they have, certainly within our largest organisations. It is now socially unacceptable as a large public organisation to have an all-male board. Ed Smith, Chair of NHS Improvement, has stated a gender target of ‘50:50 by 2020’ for NHS boards in England. Polls in Europe show the public are strongly in favour of gender balanced boards: 88 per cent believe, given the same qualifications and skill, that women and men should have equal representation in leadership roles and the majority were in favour of some sort of legislation to enact this. Boards’ approaches to hiring have become more transparent and considered, diversity is becoming a part of the board-evaluation process, and boards pay attention to diverse succession planning. However, recent research published in Harvard Business Review, after interviews with 60 male and female board directors from more than 300 publicly traded companies across the world, revealed that in countries that don’t have quotas or targets (such as the USA), the myths about the problem and the fears about possible solutions remain.

By using, and achieving, measurable objectives for gender balanced boards, we may not eliminate gender bias but, over time, women directors and leaders will be viewed as business as usual. As a senior partner of one of the Big Four recently said, a focus on diversity may start with counting the numbers, but inclusion is about making the numbers count.

 

About the Author:

Ruth is an Associate Professor in Organisation Studies at Exeter University Business School. Previous academic roles include Programme Director, Organisational Psychology at City University of London and Deputy Director, International Centre for Women Leaders at Cranfield School of Management. Since 2007 she has led research on the Female FTSE Reports, working closely with government and business, contributing to both the Lord Davies Review and the Hampton-Alexander Review into women on boards and executive positions. Before becoming an academic, Ruth was an entrepreneur and then a consultant. Ruth is currently on the NHS Women Steering Group. Chaired by Ed Smith, the group is looking to raise female representation on NHS boards to “50:50 by 2020”.

Footnotes:

1Terjesen & Sealy (2016), Board gender quotas: Exploring ethical tensions from a multi-theoretical perspective, Business Ethics Quarterly, 26(1), p. 23-65.

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