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Forced Gender Parity on Corporate Boards Misguided

FORCED GENDER PARITY ON CORPORATE BOARDS MISGUIDED
Government intervention on corporate board composition has failed in other jurisdictions.

February 14, 2017

OTTAWA – MPs studying Bill C-25 need to give some sober second thought to whether this legislation will actually achieve its goals. The bill would force corporations to state publicly how many women sit on their boards and occupy senior management positions. It would also compel companies to share their diversity policies with shareholders. Furthermore, the federal government has left open the option of mandating gender quotas on corporate boards if it is not satisfied with progress in getting women into senior positions.

What evidence is there that such policies benefit women or corporations? A book about the Nordic experience released in May 2016 punctures those hopes and should be cause for reconsidering Canada’s path. The Nordic Gender Equality Paradox by Nima Sanandaji assesses gender-equality programs and plans in Iceland, Finland, Denmark, Sweden and Norway. Sanandaji found little to no benefit from those programs.

In Norway’s case, for example, the government imposed quotas in 2003 requiring 40 per cent of board members of public companies to be women. This became mandatory for all companies in 2006. Of 500 companies affected, about 100 made "difficult but legal" changes in corporate structure to circumvent the new legislation. Moreover, share prices dropped 3.5 per cent after the quota legislation was announced. Quotas had little to no effect on women's pay, or women choosing to enter the business world.

Why would investors expect gender quotes to decrease the value of firms? Fortunately, the conclusion of scholars is that this is not because women can't manage business well, but because, thanks to the pressure of the quotas, younger and therefore less experienced women needed to be quickly promoted. Authors of one study conclude, "The quota led to younger and less experienced boards, increases in leverage and acquisitions, and deterioration in operating performance."

“When women reach the top and are on boards because they excel, it does indeed improve performance. This is not due to gender or diversity, but rather, excellence,” says Andrea Mrozek, Program Director for Cardus Family. “If quotas or other policies force hiring women on a short timeframe, and as a result, the wrong women are chosen, there is reason to be concerned that the push for gender parity will develop a bad reputation.”

At the end of the day, MPs need to ask whether the laudable goal of getting more women on corporate boards is served by the bill before them.

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About Cardus

Cardus is a think tank dedicated to the renewal of North American social architecture. It conducts independent and original research, produces several periodicals, and regularly stages events with Senior Fellows and interested constituents across Canada and the U.S. To learn more, visit: www.cardus.ca and follow us on Twitter @cardusca.

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