The European Commission is expected to take a dramatic step in its effort to diversify corporate boards.
The Guardian reports that the commission, the legislative body of the European Union, will advocate for a gender quota that requires 40% of a company’s non-executive directors to be female. Firms that fail to meet that threshold will be required to prioritize female candidates over men when filling a board seat.
The effort is aimed at turbo-charging progress toward gender equality on boards in the EU, where women currently hold—on average—22% of seats. By comparison, corporate boards in the U.S. are about 20% female.
“We have so much evidence that it is good for business to have diversity, to have women and men on boards,” Vĕra Jourová, the EU commissioner in charge of justice and gender equality, told The Guardian. “Women have a very good talent for long-term, sensible spending [and] for crisis-solving because they can come up with proposals for negotiation and compromise. It is a necessary balance to the approach of men: attack and escape.”
Instituting quotas is a controversial approach to achieving gender equality, but several EU countries have been among the tactic’s early adherents.
Spain adopted a measure in 2007. Belgium, France, Italy, and the Netherlands did so in 2011, with Germany following last year. Those nations have some of the bloc’s highest shares of female directors.
Norway—not a member of the EU—was a pioneer in corporate board gender quotas when it introduced its 40% female representation requirement in 2006. A decade later, 42% of board seats in Norway belonged to women.
“Stronger regulations with mandates for minimum gender representations are in place in many of the markets with the highest percentage of female directors, while markets with less stringent regulations or no mandates tend to have fewer female directors,” says a study published in January 2017 by the Institutional Shareholder Services, Inc.
Despite that matter-of-fact finding, quotas still have fierce opponents. Critics argue that they encourage the token appointment of women to boards, which elevates under-qualified women, undercuts corporate meritocracy, and forces companies to dip into what some characterize as the same, shallow talent pool.
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Some of those downsides have emerged in India, which in 2013 passed a law requiring every board to have at least one woman director. Virtually all Indian companies have complied with this rule, but—with an average board size of nine and with women representing 13% of directors—data suggests that they’ve hit the target for the target’s sake. Plus, anecdotal evidence points to companies selecting as board members women with familial ties to the business, such as the wife or daughter of the chair.
In France, meanwhile, the country’s 40% gender quota, passed in 2011, created a fiercely competitive market for the most obvious female board candidates, with firms seeking to tap the same women. At one point last year, women made up 28 of the 44 board appointments in the CAC 40 index, but a single woman—Clara Gaymard, the former head of General Electric in France—accounted for three of those 28 hires as Danone, LVMH, and Bouygues all placed her on their boards. (Nevertheless, France’s share of female directors has surged from 8% in 2006 to 35% in 2015.)
There’s certainly good reason for the EU to consider gender quotas. Beyond equality’s sake, there’s plenty of research that shows the positive effects of greater board diversity—companies with it are more likely to have strong financial performance and fewer instances of bribery, corruption, shareholder battles, and fraud. The question is whether it will work. Interestingly enough, ISS found that quotas are not a blanket solution; their effectiveness—whether they incite real change or prompt companies to meet simply meet the lowest threshold required—is more a reflection of nation’s societal acceptance of gender equality to begin with.