For years males have been dominant in the Australian boardroom. Out of 200 public companies, only 13% of women are on their boards. The government now has a target of 40% of women in board positions by 2015 to ensure gender diversity.
A 2010 McKinsey & Co survey found that the majority of executives believed that gender diversity will improve their company’s financial performance. They believe that more women in senior positions can start a positive loop for productivity and financial decision making.
Already companies are increasingly appointing women as board members, with 26% being appointed in the previous 12 months. The upsurge in appointments is believed to be a result of companies using search consultants, instead of professional networks.
In America only 15% of board members in large firms are on their boards and only 10% in Europe. This represents a squandered opportunity. Emerging is evidence that mixed boards make better decisions than monolithically male ones.
Mindful of this, European countries are also passing laws that would force companies to promote more women to the executive suite. A new French law requires listed firms to reserve 40% of board seats for women by 2017. Norway and Spain have similar laws; Germany is considering one. The European Parliament declared this month that such quotas should be applied throughout the European Union. Viviane Reding, the EU’s justice commissioner, says she wants European boards to be 30% female by 2015 and 40% by 2020.
There are two main arguments for compulsory quotas. One is that the men who dominate corporate boards promote people like themselves. The second argument is more subtle. Talented executives need mentors to help them climb the ladder. Male directors mentor young men but are reluctant to get chummy with young women, lest the relationship be misconstrued. Quotas will break this vicious cycle by putting lots of women at the top, who can then offer their sisters a leg up.
However, the lack of role models is no longer the main obstacle to women’s careers. Children are. One study found that two-thirds of American women had at some point switched from full-time work to part-time or flexible time to balance work and family. But in doing so, they make it harder for women to gain the experience necessary to make it to the very top, and to be appointed as a board member.
Some argue that quotas are too blunt a tool to solve the problem because quotas may force firms either to pad their boards with token non-executive directors, or to allocate real power on the basis of sex rather than merit. Neither is good for corporate governance. Norway started enforcing quotas for women in 2006. A study by the University of Michigan found that this led to large numbers of inexperienced women being appointed to boards, and that this has seriously damaged those firms’ performance.
However, the proportion of firms that address the issue by providing women with a career path that enhances their skills, and promotes gender diversity, are likely to reap the rewards.
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