Gender Quotas Spread in Europe, Mandated for Corporate Boards

After Norway adopted gender quotas for corporate boards — requiring companies to have boards of directors comprised of at least 40 percent women — large numbers of inexperienced people ended up as corporate directors. “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.”

But this didn’t stop other European countries such as Spain and France from following Norway’s example and mandating 40 percent quotas (Spain’s quota requirement is already in effect, while France’s law goes into effect in 2017). Italy’s Parliament recently passed a 30 percent quota requirement after Prime Minister Silvio Berlusconi, who had previously opposed such quotas, endorsed them (perhaps as a way of attempting to defuse public outrage over his sexual escapades and his patronizing remarks towards women). The European Parliament has recommended that all member countries adopt such quotas in their national laws.

The Economist recently opposed such quotas in an editorial. (Corporate law scholars such as Stephen Bainbridge have previously criticized these proposals.) As The Economist later noted, Europe’s race towards quotas is at odds with company practice and legal norms elsewhere in the world:

Hans Bader, a senior attorney at the Competitive Enterprise Institute in Washington, compares the situation in Europe with that of America:  “From an American legal perspective, laws mandating quotas for women on corporate boards in European countries seem utterly bizarre. In America, such quotas would be struck down as a violation of the right of male directors to equal treatment.  The Supreme Court ruled in its 1989 Croson decision that quotas violate, rather than promote, equality, calling it ‘completely unrealistic’ to expect groups to be represented in each field or activity ‘in lockstep proportion to their representation in the local population.’ American courts have struck down quotas and gender-balance requirements for boards and commissions in cases such as Back v Carter.  They have allowed companies to challenge quotas on behalf of their male or white employees in cases such as Lutheran Church Missouri Synod v FCC. And they overturned government-mandated preferences for female business owners in the Lamprecht case.” . . . Ranko Bon, writing from Motovun in Croatia, thinks it is lucky that the idea of female quotas is catching on in Europe only: “America is largely free of it, and much of Asia is still blissfully unaware. As Europe is increasingly irrelevant in world business, the damage will be limited and perhaps even tolerable.”

Defenders of these quotas argue that quotas are good for business because companies with more women on their boards do better. But even if such companies typically make more money, this claim confuses cause and effect, and puts the cart before the horse, as studies like the University of Michigan study illustrate. With each passing year, the percentage of female business professionals in Europe rises, as does the percentage of female college graduates. The pool of female qualified applicants in a company for a directorship naturally rises over time. So a company that is not growing and hires few new people will naturally have less women in its ranks than a company that is growing and hiring new people. The company’s growth does not occur because of the increase in women in the company; rather, the increase in women in a company occurs because of the company’s prior and pre-existing growth.

This is also why growing companies in the U.S. tend to have more Asians, Hispanics, and women than companies that aren’t growing: the percentage of each graduating class that is Asian or Hispanic or women grows each year. It’s not because affirmative action helps company performance — it doesn’t.  Rather, it’s because growing companies hire new blood, and new blood is more heavily Asian and Hispanic (and female) than the older generation, among whom business people are overwhelmingly white men. My brother’s investment firm was much more heavily minority than the ranks of the company its principals came from (DeutscheBank), and the financial industry as a whole, but it did not practice affirmative action, and would have regarding doing so as bizarre. The reason for its high minority percentage was because the company’s managers were young, and young people as a group are more heavily minority and more heavily non-white than their elders, due to immigration (immigrants are disproportionately non-white) and a higher non-white birthrate.