What’s The Return on Equality?: Aaron Dhir on Quotas

Folks – we’re kicking off the mini-symposium, "What’s The Return On Equality? A Conversation About Board Diversity" with the below post from Aaron Dhir. Aaron is a Senior Research Scholar at Yale Law School and a Global Justice Senior Fellow at the Yale MacMillan Center. He is an Associate Professor (with tenure) at Osgoode Hall Law School and has served as a Visiting Scholar at Harvard University, the University of Oxford, and University College London. His research interests include corporate law, governance, and theory, and the intersections of transnational business activity with international human rights norms. He is currently writing a book on corporate governance and diversity, Challenging Boardroom Homogeneity, which is under contract with Cambridge University Press.

Below is Aaron’s post.

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My sincere thanks to Kim and Darren for organizing this mini-symposium on board diversity and to The Faculty Lounge for hosting us.

My new book, Challenging Boardroom Homogeneity, will be published next month by Cambridge University Press.  In it, I draw on semi-structured interviews with corporate board directors in Norway and documentary content analysis of corporate securities filings in the United States to empirically investigate the two main regulatory models designed to address diversity in the boardroom — quotas and disclosure.

In this post, I focus on quotas.  While quotas are anathema in the United States, their presence in Europe has ignited a heated global debate.  In their most potent form, quotas mandate particular levels of gender balance in the boardroom.  Countries such as Norway, France, Italy, Iceland, Belgium, and (just this month) Germany have all taken this path.  In Germany, both genders must constitute at least 30 percent of the supervisory boards of specified German companies beginning in 2016.  In Norway, non-compliant firms run the risk of court-ordered dissolution.

Little is known about the day-to-day operation of quotas around the world.  To fill this void, I interviewed Norwegian corporate directors about their experiences under Norway’s controversial law – the very first quota on the books.  The participants in my study included men and women, as well as directors appointed before and after the law came into effect.

A strong majority of the directors I interviewed supported the law.  The dominant narrative my interviewees conveyed was that quota-induced gender diversity has positively affected boardroom work and firm governance.  Generally, respondents emphasized the range of perspectives and experiences that women bring to the board, as well as the value of women’s independence and outsider status.  They also stressed women’s greater propensity to engage in more rigorous deliberations, risk assessment, and monitoring.

But even if diversification has positive effects on company governance, the question remains:  Why are quotas an appropriate mechanism by which to achieve those benefits? 

Some commentators impugn the wisdom of quotas, charging that they stigmatize and marginalize their beneficiaries.  As one critic wrote in The New York Times:  “women admitted to boards in order to fulfill a quota are unlikely to be seen as equals whose presence at the table is merited.”  These critiques must be taken seriously.  If the recipients of affirmative action feel isolated, or that they are perceived as mere tokens, how can such measures possibly be justified?

Without question, quotas are an imperfect means of diversifying corporate boardrooms and in the book I explore the limitations of the quota model.  That said, critics sometimes paint an incomplete picture and seldom ground their arguments in the voices of those who presumably matter the most — those who actually live under quota regimes.  What do they themselves say about quotas’ possibly pernicious effects? 

My research asks exactly that question.  Only a small minority of board members I interviewed felt that female directors were stigmatized or isolated.  My female interviewees explained this in different ways.  Some highlighted the importance of the substantial number of women required by the law.  By mandating gender balance, the law made marginalization difficult, if not impossible.  As one female director told me:  “you can’t stigmatize 40 percent of the board. . . . [Y]ou could have stigmatized one person, or 15 percent. . . . But you can’t stigmatize 40 percent.”

The majority of female participants reported that they felt comfortable on the boards on which they sat, discussed their contributions to these boards, and confirmed the feeling that their boards recognized or appreciated these contributions.  Though their stories are complex, most characterized the quota as a positive vehicle that had democratizedaccess to the upper echelons of the corporation — a space previously closed to them.  This suggests that the benefits of the quota law have outweighed any stigmatizing costs, to the extent that these costs have materialized. 

Some critics may suggest that these results are self-evident – of course the beneficiaries of quotas will support the measures that opened up the otherwise closed doors of the boardroom.  The reality, however, is far more complex.  Most directors, including women, were initially opposed, hesitant, or agnostic about quotas.  It was only after seeing the law in action and directly experiencing its effects that they eventually came to endorse it.  A significant degree of the support ultimately stemmed from the view that the law was necessary to diversify boards in a meaningful way.  For some directors, this acceptance of quotas caused them to question their own deeply held beliefs in free market principles.

There are many difficult and unresolved questions about the value and effects of quota laws.  Whether a quota is appropriate for a given country will depend on that country’s socio-political context, its corporate governance culture, and characteristics particular to firms and industries.  As policymakers around the world wrestle with these issues, however, it will be important to draw from the experiences of those who have lived under quota regimes.  These narratives give us reason to believe that quotas are worthy of careful public policy consideration.

In my next post, I will discuss the United States’ experiment with diversity reporting.

 

The “What’s The Return On Equality?” Mini-Symposium:

What’s The Return On Equality? A Conversation About Board Diversity

What’s The Return on Equality?: Aaron Dhir on Quotas

What’s The Return On Equality: Kim Krawiec On The Business Case For Board Diversity

What’s The Return On Equality: Lisa Fairfax on Board Diversity’s End Game

What’s The Return On Equality: Darren Rosenblum On Quotas

What’s The Return On Equality: Daria Roithmayr

What’s The Return on Equality: Aaron Dhir On Disclosure

What’s The Return On Equality: Taking Stock of Day 1

What’s The Return On Equality? Lisa Fairfax on Board Vacancies: The Cure and the Problem?

What’s The Return on Equality: Aaron Dhir Responds To Questions

What’s The Return On Equality: John Conley Responds To Daria Roithmayr

What’s The Return On Equality: Darren Rosenblum On Examining Diversity

What’s The Return On Equality: Daria Roithmayr on Quotas

What’s The Return On Equality: Lisa Fairfax On Will We All Get There?

What’s The Return On Equality: Kim Krawiec on Lisa Fairfax on Will We All Get There?

Comments

[Mister]

Quotas are inherently unfair. I would add they have been held thankfully under US law as violative of the EP Clause. And yes I am a White Male and PROUD of it. I am all for equal opportunity for all but quotas are wrong.

[Lisa Fairfax]

Despite the positive aspects of quotas--and I think there is good evidence about the positive--there is likely a strong argument that the resistance in the US would be so strong that efforts in that area could prove counter productive. Do you have the same sense? Or are there reasons to think that there is some openness to quotas here?

[Aaron Dhir]

Hi Lisa. Thanks for your question. I think you're absolutely right. In the United States, quotas likely would face insurmountable political and constitutional hurdles. That is why I spend a lot of time in my book focusing on how the current SEC rule might be restructured (though doing so will not produce any guarantees). That said, a number of countries outside of the U.S. are currently considering quotas and I think the qualitative work discussed in this symposium can inform ongoing international policy discussions. And even in the U.S., I wonder if these research findings can help us to think through some of the key issues in the ongoing discussion on affirmative action more generally and on other forms of accommodation. All the best, Aaron