Gender diversity at the top of corporations has become a more and more ubiquitous concern in recent years. Many European countries have introduced some board quotas for the underrepresented gender in their regulation. Very recently, the European Union reached a political agreement to set a 40% female quota in non-executive director positions of all European listed companies. Quotas are also gaining momentum in the US, with California emerging as the first US state to mandate a corporate board gender quota.
In BSE Working Paper Nº 1370, “Lifting Women Up: Gender Quotas and the Advancement of Women on Corporate Boards,” Alexandra Fedorets and Anna Gibert study the case of gender quotas by gathering data of the largest 1,128 firms around the time Germany announced an introduction of a gender quota on corporate boards. Difference-in-difference and propensity score matching methods are conducted to explore whether the policy lifts women up to the top positions and narrows the gender gap.
In 2016, Germany launched Gender Quota Law for supervisory boards
Women’s participation on corporate boards in Germany has been typically very low. Women constituted less than 20% of the non-executive boards and less than 5% of the management boards of the top 200 German corporations in 2015. The majority conservative Christian Democratic Union cabinet, with the support of its liberal coalition partner, was adamant in its opposition to a gender quota until the results of a Federal election made it impossible to re-enact the current ruling coalition in 2013. Suddenly, the Christian Democratic Union and the Social Democratic Party became the only two parties able to form a government. The gender quota was part of the negotiations for the new coalition, and in 2014, the quota regulation was announced.
The Gender Quota Law (GQL) was passed in 2015, requiring the affected firms to hold at least 30% of the underrepresented gender on the supervisory boards. Germany has a dual board corporate system. This means that most companies have two boards with distinct tasks. The management board (or executive board) is responsible for the company’s daily operations. The supervisory board (also known as the non-executive board) controls and monitors the management board. Only the last one has a mandatory gender quota.
Despite a higher share of women in supervisory boards, the quota neither fosters more women in other managerial units nor helps them reach higher-ranked positions
From 1,128 firms in the “Die Großen 500” database, there are around 100 firms that must comply with GQL. Firms fall under the obligation of the law if they are listed companies and are large enough to be subject to the Co-determination Act. The regression model demonstrates the evidence of compliance. The share of women on the supervisory boards increased from 2014 to 2016 by around 1.5 to 3.5 percentage points.
Nevertheless, forcing firms to meet the quota in supervisory boards can negatively impact women’s advancement to executive roles. There is no evidence of a positive spillover to the management boards, and the results illustrate the decrease in woman’s share after the policy implementation. An analysis from the propensity-score-matching method, which matches affected companies with the most similar unaffected ones, also provides the same conclusion, as can be seen graphically in figure 1, which shows the average percentage of women on the supervisory board (panel above) and the management board (panel below), between years 2008 and 2016, split by treated (solid line) and untreated (dotted line) firms.
Figure 1: Evolution of the share of women on supervisory boards and management boards (matched sample).
Note: Percentage women is the number of women over the total number of board members in percentage points. A ‘treated’ company is defined as a company that satisfies the two criteria required by law to fall under the obligation of implementing a gender quota: being listed on the stock exchange and being subject to the Co-determination Act. A synthetic control group of ‘untreated’ firms has been created using propensity score matching on the closest neighbour based on the share of women in 2008-09, 2009-10, 2010-11, 2011-12 and 2012-13 in the respective board and the share of women and the number of employees in 2013. The 2014 year line marks the introduction of the Gender Quota Law.
Source: Die Großen 500 and authors’ calculation.
The authors attribute this phenomenon to firms’ incentives to keep the same level of minority share. When firms have a larger share of women on supervisory boards, they tend to decrease the number of women on non-mandated boards to keep the share of women board members as before the policy. Moreover, some women started to change their career paths to non-executive directors (NED) rather than pursuing management tracks such as CEOs. This implies that women with talents are steered from managerial careers to non-executive ones.
Another aspect to consider is whether the GQL facilitates women to reach the top positions. On the one hand, women who have progressed to be on the boards should be more able to reach firms’ highest echelons. On the other hand, if women on the boards are not seen as equal to their male counterparts, they may not be able to advance to the top positions. The data has shown that the increase in women’s share does not lead to more chances of having female chairpersons, in line with the existence of the second glass ceiling.
The GQL promotes opportunities for women who have been already appointed rather than making positions more accessible for other women
After the implementation of GQL, there is more demand for qualified women. This can promote opportunities and narrow down the gaps between women insiders and outsiders. However, it can also lead to a rise in women holding multiple mandates, namely being board members for more than one firm at a time. The situation where women insiders are more able to accumulate board nominations is called the “golden skirts.” The evidence supports that the phenomenon exists as there is a higher level of position accumulation for women. The golden skirts can only be observed on supervisory boards but not on management boards. This underpins the assertion that more women have become serial NEDS.
Recently, the European Union has agreed to set a 40% quota for non-executive director positions for all European listed companies. Policymakers need to consider not only the benefits but also the unintended side effects of such measures. This study has proved that the gender quota law helps promote women in supervisory boards. However, it is not the ultimate tool for solving gender inequality. As the empirical evidence has shown, only GQL is insufficient to break the second glass ceiling and enhance women’s opportunities to top executive positions.