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Dr Greg Clydesdale

The Quota’s Crusade

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One crusade pursued by the Ministry for Women, using tax-payer resources, was to get more women on corporate boards.  This is part of a global movement that has seen the introduction of quotas introduced in some nations.  The Ministry justified their position by saying that having more women on corporate boards is ‘good for business’.  By that, they mean having women on the board improves a company’s effectiveness, and they cited a number of international reports to back their position.

The reports they cite include one written by the Credit Suisse Research Institute9 which studied 2,360 companies around the world and found a link between the gender of people on their boards and performance. The Ministry also referred to reports by Catalyst10 who conducted three studies which also found that having female directors is linked with improved performance. The Catalyst studies used a number of measures of financial performance including return on sales, total return to shareholders, return on capital, and return on equity.

Two more sources that the Ministry rely on are McKinsey and Company11 and the Eversheds Board Report12. The Eversheds Business report studied UK companies during the financial crisis and found that those with more female directors performed best.  Similarly, the McKinsey reports backed what the others were saying.

Armed with such research, the Ministry has made a case for getting more women in top corporate positions.  However, the Ministry have been suffering from bias in the use of these documents.  First, there are recognised methodological issues in these studies13.  Second, they make the mistake of assuming correlation means causation.  The reports themselves admit that just because women are on better performing boards, it does not mean that women are causing that improvement. 

The findings could be explained by a phenomenon known as reverse causation.  For example, it may be that the companies were already successful and this put them in a position where they could choose directors on the basis of diversity, not financial expertise.  Secondly, successful firms are often exposed to more scrutiny than the low fliers, and this public exposure may encourage them to take actions that look good, like supporting diversity.

But the biggest problem with the Ministry’s use of these reports is that there is much more research available on this topic, and a lot of it has different results to the reports they used.  In other words, the Ministry have not objectively reviewed the literature.  They have only cited the literature that supports their case.  Sadly, they are perfectly entitled to do this, as their mandate is to progress the position of women.  They have no obligation to provide a balanced perspective.  Herein lies the problem with tax-payer funded lobbying groups.  Their obligation is only to one group in society, not society as a whole. 

A large number of studies have revealed no link between gender, diversity and the success of the business14.  A number of studies actually show a negative effect.  For example, a study by Chapple and Humphrey found having multiple women on the board and performance actually correlated with poorer performance (depending on the industry)15.  Similarly, Dobbin and Jung studied 400 leading U.S. corporations between 1997 and 2005 and found that stock values actually decreased with gender diversity16.  Another US study, published in 2009 also showed the effect of diversity on firm performance was negative.  This study came to the conclusion that “mandating gender quotas in the boardroom may harm well-governed firms where additional monitoring is counterproductive…”17

The sad thing is, a number of academics have performed thorough reviews of this subject and the Ministry could have referred to them.  The general conclusion in these reports is that the research is inconclusive, some studies find positive results, some negative; and the results can vary depending on the methodology used18.  The state of the research is best summed up by Deborah Rhode and Amanda Packel who note:

despite increasing acceptance of the business case for diversity, empirical evidence on the issue is mixed … Although empirical research has drawn much-needed attention to the underrepresentation of women and minorities on corporate boards, it has not convincingly established that board diversity leads to improved financial performance19.

The conclusion of these academics is at contrast to the Ministry of Women’s Affairs which told the New Zealand public that:

The evidence shows that women directors can help companies gain competitive advantage and increase profits, and that companies that have women on their boards outperform those that do not.20

One interesting study was that performed by Broome, Conley, and Krawiec who interviewed forty-five corporate leaders, including thirty-eight directors21.  When surveyed, the vast majority said that board diversity was an important goal which they considered when selecting candidates for the board.  However, when asked to provide evidence of when diversity enhanced performance, they had trouble finding examples.  The authors noted:

when asked to provide examples or anecdotes illustrating why board diversity matters, many subjects acknowledged difficulty in illustrating theory with reference to practice.22 

When pressed, the directors often backed away from their earlier statements that diversity enhanced performance, and instead began to praise the skill sets of their colleagues.  This study reveals the problem we have now that diversity is seen as a moral value.  It has been accorded attributes that it does not possess. 

People like to adhere to superior moral qualities, but the process may merely be one of legitimisation, and there are a large number of academics that argue diversity enhances firm performance.  It is a particularly fashionable view to hold.  This view argues that women think differently and thereby expand the range of expertise and thinking styles on corporate boards.  Women offer more social sensitivity, show greater concern with equity and are more collaborative and cooperative. 

The question is not whether these claims are true, nor whether these attributes have value.  They certainly have value for jobs in areas like social work.  The question is, are these attributes important for the role of company director?  And to answer that question you need to understand what a director does.

The role of a director depends on the size and nature of the company.  On a smaller company, a director may have more involvement in management and strategy, but for a larger company, the sort of companies that the Ministry is trying to get more women placed on, the role is more one of governance.  In which case, their role is monitoring managers, not managing.  A company board has been described as:

a collection of busy executives from other firms who (except in a crisis) gather together once a month to review and approve the broad strategic direction of a firm23.

In other words, the board actually have very little involvement in running the business.  It is the chief executive officer and senior managers who actually operate the firm; while the board merely ratifies their decisions and strategies.  They play a minimal role in decision making, which suggests the board’s contribution to value is minimal at best, and is certainly hard to measure24.  This illustrates the stupidity of the Ministry trying to stress that women enhance performance.    

It also reveals that the unique attributes that women possess do not add much value to the board role.  What matters is their knowledge of the industry and their ability to monitor corporate performance.  A global survey of directors found that men and women were very similar on economic, political, regulatory and business issues.  In fact, the difference between genders disappeared when it came to the strategic and bottom-line business issues25.  So much for diversity.  It is expertise that counts.


Even if women do not enhance firm performance, there is one other reason why quotas might be justified, and that is one of fairness (or equity).  In 2012, only 14.75% of the directors in our top companies were women.  Given that women represent half our population, this has led to claims of bias and discrimination.  Seen in this light, it is only fair that quotas be placed on private companies – or is it?

Can we say that it is unfair that men dominate corporate boards when historically women have had low interest in corporate management?  The problem is, we have no way of determining what is a fair figure.  As part of their lobbying, the Ministry of Women’s Affairs noted that 65% of university graduates are women, but this is naïve25.  We cannot expect students to walk out of university into the nation’s top jobs.  We also need to consider what subjects women are studying.

Our directors should have long experience of business, in which case we need to look at who was graduating forty years ago.  Unfortunately, I couldn’t get figures older than twenty-eight years.  These 1989 figures indicated that, of the students graduating with degrees in Commercial and Business Administration, only 37.7% were female26.  We could expect the figure for forty years to be much lower, maybe only 25% which is consistent with what the Ministry wants for a quota.  However, many of those women would have dropped out of business, at least temporarily to have children.

In 2013, 69% of women had children.  Of course, not all of them would have dropped out of work.  Nevertheless, if say fifty percent dropped out, we end up with an expectation that women would constitute approximately 12.5% of our directors.  This is lower than the existing 14.75% for private companies. Notably, for companies owned by the government, the figure is much higher, that is 41.1% for state boards and 35% for crown companies.  Appointments to state boards are influenced by political will (and the lobbying of the Ministry of Women’s Affairs).

I am not suggesting that my figure of 12.5% is highly accurate, but it does reveal problems with quotas.  We have no idea what percentage is fair.  In fact, this analysis would suggest that instead of making things fairer, they have created inequity by pressuring boards to appoint women.  Highly experienced men are being replaced by younger women simply because of political pressure.

It is at this point that we have to remember that these appointments are at our top business positions, in which experience is of the essence.  Ironically, the Ministry of Women’s Affairs argues that “If the criteria for board selection focus solely on previous board or extensive commercial experience then women can often be excluded right at the outset”27.  Consequently, they argue that “looking at competencies with a broader perspective opens up many possibilities for outstanding board appointments”. 

This raises serious concerns in that a government agency staffed by feminists are telling companies what the appropriate capabilities are for corporate boards.  The Ministry simply isn’t qualified to make these judgements. 

Of course, the Ministry claims the reason women are not getting enough experience is because of unconscious bias, stereotypes, career breaks and lack of flexible working conditions.  At no point do they consider that many women prefer to be mothers.  In their eyes, if women take this option, it is not by choice but because of pressure from society.  The Ministry states “Gender stereotypes mean women are expected to have career breaks and be the primary caregivers”28.

In reality, many women choose to place families first.  They might like to have the top jobs but they are not going to put in the extra work at the expense of their family.  Early feminists fought to expand the choices for women, but the current breed at the Ministry have forgotten that one of the most desirable choices is being a mother.  It is one of society’s most special roles, but if women take that choice, it is most likely they will not be able to commit the long hours needed to take the top jobs.


The early feminists have achieved so much, not just for women, but for men in that they have liberated us from forced roles.  Time has moved on but many feminists remain political with an explicit desire to juxtapose women with men, with the consequence that women’s real concerns have been ignored.  It is time to stop focusing on power and focus on women’s happiness.  Disband the Ministry for Women.  Give half their budget to the Mental Health Foundation and the other half back to the tax-payer.

Extracts from “The Politically Correct Economy” – see HERE.