EU’s Proposed Gender Quotas For Corporate Boards

From Isaac Gorodetski’s post on Point of Law:

In recent commentary, senior attorney and counsel for special projects with the Competitive Enterprise Institute, Hans Bader, articulated a compelling argument against the European Union’s push for gender quotas for corporate boards. Several European nations including Spain and France already impose 40-percent quotas for corporate boards and EU officials are moving toward implementing a mandate on all member nations even those that have resisted interfering with corporate governance. 

In his entry, Hans recognizes the potential disaster in widespread implementation of a discriminatory gender quota:

Gender quotas could provide a big boost for nepotism on corporate boards in some fields. In sectors like metallurgical engineering, there are just not very many women with the required knowledge and expertise to sit on a corporate board. So a company in such a sector, confronted with a gender quota, will probably pick female relatives of existing corporate insiders to sit on the board. If you have to put someone who is largely ignorant of your business on your board, it might as well be someone who will do what others on the board with more knowledge advise them to do — and they are more likely to take your advice if they are your relative than if they are not related to you.

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.”

Additionally, in this piece, Hans points to the fallacy which often leads to the adoption of these quotas:

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.

In an earlier post, Hans also examines the push by the Obama administration to implement quotas in the workplace and higher education based on race, disability and possibly sexual orientation.