Is there merit to gender quotas?

Sep 29, 2020

Rachel Hussey asks whether gender quotas really do their job in bringing equality to the workforce and boards.

Sometimes change needs help and, in the world of business, what gets measured gets done. So, like many advocates for change, I joined the debate as to the merits of gender quotas or targets as an effective means to address the lack of gender balance on boards and at senior decision-making tables. Quotas provoke strong responses, both in favour and against. Unlike most debates, however, we are all agreed on where we want to go, we just disagree on how to get there. 

There is a subtle difference between quotas and targets. Quotas are generally mandated by an external force, such as government or regulatory bodies, and they operate on a pass/fail basis with penalties for failure to reach the quota. Targets are voluntary in nature and are typically set internally by the business or industry. While there may be internal or external peer pressure to reach the target, lack of progress has less punitive consequences.

There is a considerable amount of evidence that gender quotas for boards may not bring about systemic and sustainable changes. Quotas tend to drive short-term changes that are reversed once the quotas are lifted. For example, Norway introduced a 40% quota for boards of listed companies in 2006. The quota was reached by companies, but the side effects were counterproductive. A number of companies delisted before the legislation was introduced, thereby dodging the requirement. 

However, the biggest problem was that in the rush to meet the quotas, companies no longer focused on the pipeline of women in their businesses, which is the key to sustainable success. The Norwegians’ own studies show that eight years after the quota was introduced, there were no women CEOs in the country’s 60 largest companies. There was also no evidence of higher pay or more career-advancing opportunities for the vast majority of women in the workforce. Having more women at board level did little to benefit women. On the contrary, it failed to attract more women to climb the corporate ladder and it failed to open up more mid-career opportunities and better pay.

By contrast, in the UK in 2011, Lord Davies set a target for FTSE 100 companies to have 25% women on their boards by 2015 (from a starting point of 12.5%). Lord Davies may have had the threat of quotas in his back pocket, but the target set was reached and exceeded. The percentage of women on the boards of FTSE 100 companies by the end of 2015 was 26.5%. Today, across the FTSE 350, the percentage of women on boards is 33%. In contrast to the quota approach in Norway, there was no reduction in the number of listed companies and no reductions in the numbers of women moving up the corporate ladder. The more recent Hampton-Alexander review has now extended the idea of targets to C-suite roles to drive similar progress at the top table.

In Ireland, the 30% Club’s goal is that women should make up at least 30% of boards and senior management, and we believe that this should – and can – be achieved by voluntary means. We do not support the idea of quotas and, instead, our members drive accountability for their own progress through target-setting, leading to a greater focus on pipeline talent and more sustainable progress. 

In 2018, the government established Balance for Better Business, which has set targets for Irish companies. Its first target, 25% of women on the boards of Irish plcs, has been reached. Likewise, the government’s own target of 40% of women on State boards has resulted in a substantial increase in the percentage of women on those boards.

And finally, there’s still the question of targets versus merit. For me, there no debate on this question. Targets focus on greater diversity in appointments, but never at the expense of the potential to do the job. It is easy to dislike the idea of others being selected solely on the basis of their status, and if merit-based criteria are not emphasised, people assume that they are non-existent. This is both unfair to appointees and to the wider employee population. It is our job as leaders to show that targets and merit are inextricably linked and there is no place for the perception or reality of a free pass.

Rachel Hussey is Chair of 30% Club Ireland and a Partner at Arthur Cox.