Bringing Women to the Table in California’s Corporations
By Jennifer M. Piscopo | August 21, 2018
Gender quotas for corporate boards raise the proportion of female directors, because waiting for companies to voluntarily add women to their boards has proven an extremely long-game. In fact, even threatening companies with quotas can boost women’s appointments. As California considers the move, Europe provides evidence of its effectiveness.
This August, California could become the first U.S. state to adopt gender quotas for corporate boards. The potentially precedent-setting bill has passed the state Senate, but opposition has emerged as the state Assembly begins deliberations. The deputy editorial editor of the Los Angeles Times referred to the measure as “social engineering at its worst,” and the California Chamber of Commerce argued the bill would reduce efforts to achieve workplace diversity by privileging gender over other identities. But the research is clear: state regulation is the only proven effective tool for speeding up women’s appointment to corporate board positions.
The California Assembly has until the end of August to decide whether the bill, cleared by its Senate in May, becomes law. Authored by two women senators, SB-826 requires publicly held companies headquartered in California to have at least one woman on their boards by the end of 2019 and to have larger ratios in place by 2021. Noncompliant companies would face a fine.
Iowa currently requires gender balance for all public boards at the state, county, and city level, but SB-826 would make California, often a bellweather state for legislation of all kinds, the first to impose gender requirements for businesses. Even if SB-826 fails, my research shows that this mere threat of regulatory action can increase women’s presence on boards. State legislators around the country looking to promote gender equality should take notice.
Voluntary action is not enough
Those opposing corporate board gender quotas are putting their faith in pipeline theory – the notion that, over time, more talented women will gain the requisite experience and skills to be appointed to boards. The numbers, however, show there are already plenty of talented women, but few female directors. Of companies headquartered in California, 61 percent have one or no women on their boards, despite the fact that the state ranks in the top ten for numbers of women-owned businesses. The rate of change is glacial: In 2013, women held 13.3 percent of board seats. Today, women hold 15.5 percent of the seats.
Corporate quotas have become popular solutions to the “pipeline’s broken promise,” principally in Europe, but also in places as diverse as Israel, Malaysia, Kenya, South Africa, and Quebec. With Susan Clark Muntean, I tracked the rhetoric underlying corporate quota adoption in 22 Western European and Anglo democracies. We found that countries passed corporate quota laws once ministers adopted a “time’s up” language. In Germany in 2011, Chancellor Angela Merkel gave German companies “one last chance” to take voluntary action toward gender parity. Progress proved unsatisfactory, and Germany adopted a 30 percent quota for women on corporate boards in 2014. The measure took effect in 2016, and recent studies found that women held 29.7 percent of seats on the supervisory boards of Germany’s largest public companies.
What corporate quotas look like
We counted sixteen European or Anglo democracies with corporate quota laws, all adopted since 2003, with Norway leading the way. The measures come in several forms, as shown in the table below. First are comprehensive laws, under which the quota applies to privately held and state-owned companies. Second are limited laws, where the quota applies to state-owned companies only. Last are soft quotas – these are not laws, but non-binding regulations in the country’s stock exchange listing or corporate governance code requiring that listed companies have targets for gender diversity on their boards. Some countries combine their legal quotas for state-owned companies with soft quotas for privately held companies.
Corporate Quotas by Type and Year (Most Recent Reform)
Both comprehensive and limited laws typically contain target dates and phase-in periods. For instance, Italy required that companies achieve 20 percent women on their boards by 2012 and 33 percent by 2015. They also include some form of financial sanction for non-compliance, as in the case of Belgium, Denmark, France, Italy, Norway, and Spain. The proposed California law thus follows global trends in ramping up the quota threshold over time and penalizing noncompliant firms.
Raising the proportion of women through coercion
We also examined how different quota types – comprehensive, soft, or no quota – affect growth in the national-level proportions of female directors. First, we found that countries without quotas had no growth or even lost ground in appointing women to boards. By way of example, the U.S. actually had fewer female directors in 2013 than in 2005.
Second, we found that some countries with comprehensive laws made enormous gains, while others made few. This pattern held for countries with soft quotas.
Put differently, not all quotas are equally effective.
For countries with comprehensive laws, statutory strength matters. Companies strongly resist corporate quotas – German carmakers such as BMW, Daimler, and Opel threatened to move production out of the country – but many laws, including the German one, actually exempt large companies. Further, many governments decline to enforce sanctions when faced with noncompliance. The countries that saw the most gains – Norway, Iceland, France, and the Netherlands – have comprehensive laws that limit exemptions and provide for enforcement. These were the only countries to raise their proportions of female directors ten or more percentage points between 2005 and 2013.
In countries with soft quotas that made comparable gains – Finland and Sweden, for instance – the key was ministers’ deployment of the “time’s up” rhetoric. German companies did not respond with sufficient swiftness to Merkel’s “one last chance” rhetoric, resulting in the country’s comprehensive law. But in other European countries, the threat alone spurred action.
In Sweden in 2002, for instance, the deputy prime minister requested 25 percent women on boards or the government would act. “The threat is real,” she said. By 2006, the proportion of female directors on Swedish boards had risen by 150%, or eight percentage points.
The upshot is that, in the short-term, credible threats can matter as much as actual statutes in getting more women appointed to corporate boards.
Moreover, the government’s credible threat carries more weight more than the companies’ protest– none of the carmakers shifted production outside Germany, even after the corporate quota came into effect.
If SB-26 passes, California could quite literally change the face of corporate America. And even if the bill does not succeed, its introduction could give women board members in the U.S. states a temporary boost – perhaps just the foothold women need to establish a permanent presence in corporate boards.