Quotas For Women On Boards: A Risky Game

In Chile, only 16.6% of our listed companies have one or more women on their boards of directors.

It is a modest figure, but by no means unusual.   In Latin America, both Peru and Argentina have lower representation and worldwide, believe it or not, that figure actually gets us into the Top 10 – just behind the USA.

These figures comes from a 2013 survey by EY, the global conglomeration of Ernst & Young companies. The survey placed the worldwide percentage of women on corporate boards at 11%.

Being “better than average” and ranked alongside many powerful nations on this issue is no source of comfort or pride. Women remain woefully underrepresented but, on the bright side, the global focus on promoting diversity in the workplace is one of the most satisfying developments of the past decade.

So what is working, and how can smart leaders contribute to this evolution.?

The primary choice is between voluntary and imposed strategies.

Here in Chile, we have considered quotas.  At the government level, President Bachelet said in a speech on May 21 that he would establish this system in state enterprises. It hasn’t happened yet, but there is plenty of precedent.

More than 20 countries have set quotas, led by Norway, which established a 40% quota back in 2003 when they were at 9%.  They reached their goal in 10 years but it comes with a stiff price.  Failure to maintain the 40% can lead to the dissolution of the company.

A less draconian option is being discussed here, which would be to have temporary quotas. The thinking is that diversity will evolve naturally in the foreseeable future but temporary quotas can jump-start the process instead of waiting another 15 years.

 

Quotas a poor solution

Many people, myself included, feel quotas are an unsatisfactory solution to an issue which, after all, must be merit based if it is to succeed.  Forcing participation levels, as is being done in Norway, quickly becomes a high-risk game that ends up minimizing talent in pursuit of mathematics.

But there is no denying that we still need incentives to accelerate progress

The voluntary quotas introduced by the UK may be an acceptable compromise.   Challenged by a voluntary goal of 25% by 2015, British business has responded with growth from 10.5% in 2010 to 20.7% in 2014.

Hopefully, even this form of peer pressure may soon prove unnecessary.  As awareness grows of the benefits of diversified leadership, well-led firms will drive for diversity out of self-interest.  There is a mounting body of evidence that companies with diversified boards perform better – a trend that will not escape the notice of shareholders.

A report by Credit Suisse based on an analysis of 2,360 companies worldwide found that, between 2005 and 2011, companies with at least some female board representation outperformed those with none as measured by share price performance – specifically a Return on Equity (ROE) of 16%, four percentage points higher.

 

Women directors bring better performance

A similar survey in 2007 by McKinsey found that 89 European-listed companies with the highest proportions of women in management and on the board outperformed industry averages by 10% in ROE, 48% higher EBIT and 1.7 times the stock price growth.

While the absence of women is very much a cultural issue, it is clear the argument to reverse that is an economic one.

“It’s not that there are positions created specifically for women or for men,” says Janet Awad, general manager of Sodexo Chile.  “From my experience, being a leader within an organization is not defined by gender.

“But there is a difference.  The leadership of women is complementary to that of men.  It is identified with a style of communication and collaborative solution to problems, focusing on shared relationships.”

To obtain these advantages, to bring the contributions of more women into senior positions, we must smooth the path they have to travel.  There are several very practical issues – such as parenting – which will keep a talented woman out of the workforce if there is not sufficient flexibility that will allow her to fulfill both roles.

Policies such as flexible hours or telecommuting are good strategies to attract and retain female talent.