Gender quotas for boards ‘may have a positive impact on shareholder value’

New research studies on boardroom diversity suggests gender quotas may not damage shareholder value and highlight that more needs to be done to increase the supply of women to boardrooms.

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Gender quotas are not necessarily a costly way of promoting equality, according to new research, which suggests there is a positive effect on company value.

The study, Gender diversity in corporate boards: evidence from quota-implied discontinuities by Olga Kuzmina from the New Economic School and Valentina Melentyeva from the University of Mannheim, shows that gender quotas do not impact on value to shareholders and runs counter to previous research on Norway which produced mixed results and seemed mostly to suggest a negative impact.

The researchers used data from all European countries that introduced percentage-based quotas for public companies, including the UK, France, Italy, Belgium, Spain, the Netherlands and Norway.

They say Norway may be an outlier and it may not be able to generalise its results for other contexts. The researchers also look in-depth at the possible reasons for their findings. They find that any loss of operating performance, such as lower sales to assets ratios, does not lead to lower market values and may in fact lead to the opposite. They say this suggests the organisations may have scaled back their client operations “consistent with evidence on women being less prone to empire building”.

The study is among a number on gender diversity to be presented at the Annual Congress of the European Economic Association this week. Another German study, Unintended consequences of gender quotas in a dual board system by researchers Alexandra Fedorets and Anna Gibert found a positive effect on the targeted supervisory board, but a relative decrease of female representation on the non-targeted management board and no change in the probability of women holding board presidency.

They say: “Although our results document that the short-term effect of gender quotas is limited, if not adverse, quotas have the potential to unfold their positive effect in the longer run. For quota laws to be truly effective in promoting women in all leading roles, the mandatory quotas must be coupled with active policies that reduce the search cost for female talent. In particular, this implies not just promoting qualified women other than those who are already sitting on boards, but also making female talent visible throughout all career stages, such as boosting the internal promotion

of women, which should be paired with policies for a better work-life balance for both genders.”

A US study echoes this concern about the supply side of women to board level. The study, Supply and demand side determinants of board gender imbalance: The US evidence led by Patricia Boyallian from Lancaster University Management School, examined why women are still heavily underrepresented in US boardrooms at a time when many countries are introducing policies such as gender quotas to achieve greater gender balance in boards. To understand this the researchers studied how successful women are, relative to men, in finding a second board appointment after an initial appointment.

They find that women do better than comparable men in terms of the quality, likelihood and speed of the second appointment. With regard to first appointments, however, they find that women tend to have significantly less leadership and work experience in quoted firms than men. They say: “Our findings are consistent with underrepresentation of women being more a consequence of supply side factors: in particular, a lack of opportunities for women to rise up the corporate ladder, so that only a small number of exceptionally capable women manage to be on the radar of nomination committees.”

A fourth study, based on a study of a South African affirmative action policy by Anna Minasyan and Stephan Klasen, suggests incentivised gender-based targets for senior managerial positions are likely to be more effective than quotas in increasing the representation of women at the top. It shows the affirmative action policy helped to increase the share of black women in top management positions from 18% in 2003 to 45% in 2015 of all black men and women at the senior level.