The Faculty Lounge

Board Diversity In The News Again

Thanks to California, corporate board diversity or, more specifically, gender diversity, is in the news again. SB 826 which, according to news reports, Gov. Jerry Brown is expected to sign, passed the state Senate in a 23-9 vote and the Assembly in a 41-26 vote. The statute would require “publicly held domestic or foreign corporation[s] whose principal executive offices, according to the corporation’s SEC 10-K form, are located in California” to have a minimum of one female director on its board by the end of 2019. By the end of 2021, those numbers would increase for corporations with five directors, who would need to have a minimum of two female board members, and for corporations with six or more directors, who would need to have at least three female board members.

The bill provides the usual business case for board diversity, claiming that “publicly held companies perform better when women serve on their boards of directors.” The bill then goes on to cite as evidence a number of reports, including by MSCI and Credit Suisse, among others.

I have detailed at some length, both here, in a series of papers (co-authored with Lissa Broome and John Conley), in a piece for the NY Times, and in a recent public radio debate, why these studies that simply confirm the well-known correlation between board gender diversity and firm performance cannot be taken as evidence that gender diversity causes superior performance. This is more than just a recitation of the old “correlation doesn’t equal causation” argument. In this case there are strong empirical and theoretical reasons to believe that such a conclusion is premature.

As an empirical matter, although some peer-reviewed studies do show improved corporate performance (or other benefits, e.g. better compliance with legal mandates) from having more women on boards, others show no effect or even a negative effect. As a theoretical matter, there are other plausible explanations for the correlation. For example, better performing firms could have the luxury to focus on board diversity in a way that firms struggling to meet basic earning goals might not. In fact, this point was emphasized to us in a number of director interviews, including interviews with female and minority directors.

In addition, women and minority directors with the type of C-suite experience generally preferred for corporate boards are fairly scarce commodities who may have the luxury of choosing only the most profitable and least risky boards on which to serve. There are exceptions to this -- for example, financial and accounting expertise are in high demand, and many of our respondents told us that they thought this was an avenue by which more women might be included on boards. Moreover, we might question whether the qualifications demanded of directors do more to exclude women and minorities than they do to ensure director competency. These are valid and important questions, but don’t undercut the argument that women are drawn to profitable companies, rather than create profitable companies. Finally, both gender diversity and superior firm performance could be caused by some third factor – for example, a forward-looking management.

All of this is detailed in the articles that I will link to below. But, the point is that the evidence cited in SB 826 to justify intervention in the director selection process does not show what the bill and its supporters claim. In addition, as I discuss in Thursday’s radio interview, the bill has constitutional problems. The bill’s sponsors apparently recognize that quotas present an Equal Protection Clause problem yet argue that their proposal does not constitute a quota – a claim I contest in the interview. I expect discussion to increasingly focus on those issues if, as expected, the bill becomes law.

Including more women (and minorities) on corporate boards is a good thing. In all of our articles, Lissa, John, and I discuss a number of social goods that might emerge from having a more inclusive environment in the power structures of American corporations, including its boardrooms. For example, a focus on board diversity might encourage corporations (and search firms) to look outside of their usual networks for directors – networks in which women and minorities tend to be underrepresented. A diverse board might signal to consumers, employees, and other constituencies that their voices and views are represented in the highest reaches of American businesses. And one might simply argue that it is unfair that the (rather considerable) financial benefits that stem from directorships in many public corporations are not shared more equally by women and other underrepresented groups.

But we need to be realistic about what board diversity can and cannot accomplish, and more honest about what the evidence does and does not show. A failure to do so could well set back the cause of gender (and racial diversity) in the boardroom and, more importantly, in corporate management.

Comments to this post are closed, so if you want to talk to me about it find me on twitter @KimKrawiec.

Articles and book chapters about board diversity:

Diversity and Talent at the Top: Lessons From the Boardroom, in Diversity in Practice: Race, Gender, and Class in Legal and Professional Careers 37-80 (Spencer Headworth et al eds., 2016) (with John M. Conley & Lissa L. Broome)

A Difficult Conversation: Corporate Directors on Race and Gender, 26 Pace International Law Review 13-22 (2014) (with John M. Conley & Lissa L. Broome)

The Danger of Difference: Tensions in Directors’ Views of Corporate Board Diversity, 2013 University of Illinois Law Review 919-958 (2013) (with John M. Conley & Lissa L. Broome)

Dangerous Categories: Narratives of Corporate Board Diversity, 89 North Carolina Law Review 759-808 (2011) (with John M. Conley & Lissa L. Broome)

Does Critical Mass Matter? Views from the Board Room, 34 Seattle University Law Review 1049-1080 (2011) (with Lissa L. Broome & John M. Conley)

Narratives of Diversity in the Corporate Boardroom: What Corporate Insiders Say about Why Diversity Matters, in Discourse Perspectives on Organizational Communication 201-660 (2011) (with John M. Conley & Lissa L. Broome)

Signaling Through Board Diversity: Is Anyone Listening?, 77 University of Cincinnati Law Review 431-464 (2008) (with Lissa L. Broome)

 

In the media:

KQED Radio, debate with Betsy Berkhemer-Credaire, board member and past president, National Association of Women Business Owners of California, which sponsored SB 826

NY Times Room for Debate

Prior Faculty Lounge blog posts:

http://www.thefacultylounge.org/board-diversity/

The Law School Industry: Dean, Associate/Assistant Dean Positions 2015-2016

The data included in the excel spread sheet and attached brief pdf summary (downloaded attachement is provided via link on tab 'files') provides information from the 2015-2016 academic year on the composition of dean positions in the US Law School industry.

The appointments are organized alphabetically by state, and within each state, by school, with a list of the Head Dean and any Assistant and Associate Deans. In addition, profile links, email addresses and background degree information is provided. Certain information is color-coded to help identify specific factors (e.g., female deans, post-graduate degrees). We specifically focused on questions of gender, pedigree and level of degrees in relation to state geographies, and we have included some overview of our findings below.

There are, of course, a substantial number of additional factors that could be incorporated into the study, and might influence how the data is interpreted: e.g., questions of age, disability, race, sexual orientation, socio-economic conditions, and so forth. The data was compiled from the 2015-2016 academic year, so there may be some more recent updates that are not incorporated into this study. We apologize for any errors, hope the document is of interest, and grateful for any corrections.

 

 

Challenging Boardroom Homogeneity

Recently, I had the good fortune to attend Challenging Boardroom Homogeneity, a symposium and book launch hosted by Aaron Dhir at Yale Law School.  Lounge readers may remember that Aaron participated in our recent What’s The Return on Equality? mini-symposium here at the Lounge, in which he discussed some of the findings from his interviews with Norwegian directors that form the basis for his book. 

 I won’t say much about the book right now (though I may come back with a more detailed discussion later), other than to say that I definitely recommend it for anyone interested in this subject matter.  Although I am significantly more skeptical than Aaron when it comes to directors’ assertions regarding the business case for boardroom diversity, the material he’s collected is a real contribution to the field and really essential reading. 

The book launch and symposium was a great event that included many folks whose work in this area I’ve admired for some time.  And, as is particularly appropriate for the topic, it was a highly diverse group on a number of fronts, with academics from law, economics, sociology, political science, and psychology represented, as well as directors, business leaders, and others active in this space from the non-academic side.  It was one of the better events I’ve attended. 

The photo is of our group at the end of an excellent day’s discussion. 

Today’s Room For Debate: Board Diversity

Following close on the heels of last week’s mini-symposium, What’s The Return On Equality?, today’s New York Times Room For Debate poses the question, “What is the effect of having more women on corporate boards?”

My contribution, What Does Corporate Boardroom Diversity Accomplish? is here.  As is common with these things, I did not pick the title – in fact, my proposed title was “What Not To Expect From Board Diversity” – the answer being higher earnings. The title used by the Times seems to me to actually minimize the extent of the debate between me and the Catalyst contributor, whose post is particularly egregious, though not in ways that will surprise those familiar with the Catalyst party line. 

Nonetheless, hopefully some Lounge readers will enjoy.

I hope to have some time later this week to expand somewhat on the points I raise in the post. 

What’s The Return On Equality: The Wrap Up

  I just want to quickly thank our guest bloggers for their participation in this week’s mini-symposium.  Most of the conversations were super productive, both for us bloggers and for Lounge readers, some of whom have reached out to express their gratitude to the group for sharing their thoughts. Thanks to all for participating and to you Loungers for reading!

 

As a recap, the relevant posts are linked below.

 

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?

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

I just wanted to follow up on Lisa’s previous post regarding what she sees as a potentially concerning trend for racial diversity in the boardroom as compared to gender diversity in the boardroom.  This is an issue that arose in our interviews as well and I think it is safe to say that our respondents were more optimistic about the future of gender representation in the boardroom than about the future of racial diversity in the boardroom.  

For example, as I noted in my previous post, almost all respondents said that board diversity was beneficial, and many expressed a desire to see more of it. But, when we asked why boards were not more diverse, the response almost always related to the talent pool. Many thought it was just a matter of time before more women and minorities gained sufficient experience at the appropriate corporate level to be qualified for and considered for board service, though a number considered the talent pool, or “pipeline,” deeper for women than for racial minorities.  A white male respondent gave what seemed to be the standard explanation: 

A: Well the easy answer is because there’s not enough qualified people, but I think that’s a copout. I think that a lot of work needs to be done in educating boards, and the CEOs to get on the ball here. It’s frustrating to me at times that more progress hasn’t been made in the forty years that I’ve been doing this, and I don’t have an excuse for it other than there’s not enough pressure, if that’s the right word, being placed on CEOs for upper level management considered female or minority. I think we’re getting a larger and larger pool of qualified talent every year. I mean it takes twenty to twenty-five years to get somebody to the level of experience of a [name of a white male director]. You don’t get that in five years, so it’s an ongoing process, and I would say probably we didn’t wake up until the eighties in getting people educated and into first-level management positions so that they could go further so I think maybe now we’re starting to see the results of that, and that’s why there’s more qualified people coming, but I don’t have any excuse for why there’s fifteen percent of the people on boards or management.

Several respondents contrasted the difficulties in identifying talented minority board candidates with the (relative) ease of identifying potential female candidates. One white female director acknowledged that this could be a function of her own and others'  limited contacts: 

A: I would say there are fewer salient racial minority leaders who are brought to our attention, than women. And I’m not quite sure why that would be. But we had a harder time deepening our list of minority candidates than women, even though, in the end, I think we had some very strong minority representatives. So, it may be that there are just fewer people who come to mind, or it may be that as a woman I was more aware of the women I wanted to suggest.

This quote echoes a notable theme from our interviews – that who you know matters, and that women and minorities often lack the social networks that position white males as identifiable board candidates. For instance, a white male director reported:

A: There may be thousands of qualified women, but they’re not connected. They don’t belong to the New York Athletic Club or the Olympic Club in San Francisco, which is where those decisions get made unfortunately.

I’ll close with a final exchange that, in our view, exemplifies the fraught nature of discussions about gender and (especially) race in the boardroom. We discussed one board’s perceived need to diversify by adding an African American director. He began by stating that the board in question had made a “conscious decision” to seek an African American candidate. Yet even though race was a “big, big plus factor” only one of three finalists was African American—and “not because of color”:  

Q: And was this a fairness or responsibility argument again that we need to have an African American on the board?

A: Well it was a conscious decision by the board that we felt given equal qualifications we would prefer to have a minority and specifically, if we could, an African American.

Q: And was that more just sort of, you felt it was the right thing to do or because of specific business imperatives?

A: No. It was the right thing to do.

Q: The right thing to do. Okay.

Q: Was the search limited by that as a factor or was it an open search with that as a big plus factor?

A: It was an open search with that as a big, big plus factor and we narrowed it down to ten people. I think half of them were African Americans and a couple of them were Hispanic. No. I shouldn’t say that. Three or four were African Americans, two or three were Hispanic. There was one Oriental and I think there were a couple of females. We interviewed the top five and [an African American male] came out on top. Incidentally, the number two person was a white male. The number three person in the whole thing was a female.

Q: So despite the strong plus for an African American candidate, really only one of the top three was an African American.

A: Only because of qualification and not because of color.

These quotes and others from our interview transcripts can be found here, for those that would like to read more.

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?

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

The good news about this current wave of board diversity advocacy is that it appears to be achieving at least some results.  Survey data reveals that boards pinpoint diversity as a top (and in some cases the top) recruiting priority.  And while the overall board diversity percentages continue to be stagnant, a deeper dig into the numbers suggest a subtle shift occurring with respect to gender diversity.  However, that shift has not spilled over to directors of color. 

Instead, an even digger dig into the numbers suggest a puzzling, if not disturbing, trend.  Consider this: 30% of new directors are women, but only 12% of people of color are new directors, a drop from 18% in 2013.  What accounts for the differential?  Certainly a variety of factors, but here are some other statistics that deserve some thought. 

• 71% of boards say that recruiting a woman director is a priority, but only 64% say that recruiting a minority is a priority. (2014 PWC Survey)
• 61% of women directors describe gender diversity as very important, but only 42% of women directors describe racial diversity as very important, and only 24% of men view racial diversity as very important (2104 Stuart Spencer Index).
• 5% of S&P 500 boards have no female directors, but 15% of the top 200 S&P 500 have no directors of color (2104 Stuart Spencer Index).

I do not mean to suggest that the momentum related to enhancing gender diversity is not positive.  I also do not mean to suggest that it is inappropriate for groups to push for or emphasize certain forms of diversity.  And I certainly do not mean to suggest that we should make diversity a zero-sum game whereby women and people of color are fighting for the same single seat or otherwise somehow fighting against one another.  However, I do mean to say that I am disturbed if the result of our efforts at enhancing board diversity is that we are left with the impression that directors of color are somehow less valuable or less desirable than women. 

 

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?

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

So I don’t have much to add to Darren’s very able discussion of Scott Page’s work on diversity.  I will say that the interview responses we got raise the real possibility that women are making a difference substantively because of what else they bring to the table besides their gender.  To comply with the quota’s requirements, French boards are using the opportunity to select “two-fers,” meaning women who bring gender compliance plus something extra—expertise on environment or on labor or on the operation of US markets.  If women are making a substantive difference in France, it might not be because their “gendered perspectives” are diverse—because they are more risk averse because they are women, for example—but because their corporate operation perspectives are diverse.  It would be interesting to compare the performance of firms that bring in men with those same pluses, to see whether these men produce any substantive difference. 

With regard to Kim’s question, “What purpose do YOU expect quotas to serve,” I want to fight the question a bit.   I don’t think it matters all that much what I expect—the more interesting question in my view is what those who enacted the quotas expected (and they expected many different things from the quota in France, as our piece documents.)  But to the extent that it matters, I expect quotas to serve a remedial purpose—to redress a very long legacy of first intentional and now structural exclusion.  Whether or not women affect corporate performance, for better or for worse (and whether or not we can ever sort that out empirically, whether quantitatively or qualitatively, which I suspect we cannot), quotas remedy the exclusion in the short term.  In addition, perhaps they begin to change structural features of board selection in the longer term as well, as women become part of the selection process, likely to choose people who look like them.  

 

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?

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

Kim pushed us on the real value of diversity, and I relish that she is interested in pushing this line of thought.  I share this skepticism about the presumption that diversity is good without further detail as to why.  On this question, I have three points: 1) near term v. long term value of diversity drawing on our study; 2) a theoretical engagement with the value of diversity, following Scott Page’s work and 3) the crucial difference between mixité and diversity. 

Whether mixité affects decision-making 

More than a Woman: Insights into Corporate Governance after the French Sex Quota, co-authored with Daria Roithmayr, draws on interviews of men and women board members of a third of France’s CAC 40 firms.  We conclude that as women join the board, the process of board deliberation may change. The interviewees report that women discuss matters in a more methodical fashion, and their doing so encourages men to follow suit. However, many interviewees treated the notion that men and women would vote differently as preposterous. They reported that the inclusion of women would not change substantive decisions, that that men and women are not “as different as the sun and the moon,” that they would make the same substantive choices without regard to their sex. When considering the positions of individuals within boards, of boards within firms and of firms within markets, board members’ experience would define their choices around market expectations. This reality may reduce the extent of diversity’s effect on boards.  Two other points here: first, workers have representation on many European boards, which does lead to more diverse perspectives, but for different reasons.  Second, our article concludes that the outsiderness of new board members may ultimately play a role in reshaping the board.  Over the long term, the inclusion of a more diverse pool of candidates may lead boards to shift their outlook and even their choices. 

How diversity matters

When thinking about Kim’s question, “why diversity matters” answer sits with Scott Page’s work.  Daria shared his work The Differencewith me, and it’s completely changed my understanding of how diversity functions and why it matters.  In the book, Page reviews a variety of different economic and social science studies on diversity and concludes that diversity matters in certain contexts but not in others. 

According to Page, a dichotomy exists with regard to linking diversity with better results, a dichotomy that depends on the nature of the work itself rather than on the nature of the diversity.  If the work involves some creativity, the presence of a diverse group of individuals will help arrive at a more effective result than one individual exercising her predictive powers. However, when the work is repetitive or involves implementation, diversity will matter less, and may even prove counterproductive. Problem solving involves distinct capacities from routine tasks, and that distinction is the one on which diversity’s import hinges.  For a team of burger flippers, diversity matters little, but in designing the layout of the burger joint it might matter more.  The question surfaces whether corporate board work is creative or repetitive and while most would presume the former, I think the question is still a legitimate one to pose.  Where boards play a principally responsive function in relation to the executive, it may be the case that their work involves less creativity. Jonathan Macey has argued that the board should become more “managerial,” and where this occurs, the presence of a diverse group of individuals will help arrive at a more effective result.

One relevant factor here is the distinction between diversity and mixité.  Page’s work on diversity maps distinct types of diversity, including sex diversity.  Thus, even though in a French context we would normally distinguish between mixité and diversity, when applying Page’s work to the FCBQ, the type of diversity should matter less. 

Mixité or diversity

Last, a note on mixité, a French word that means sex diversity. When we talk about diversity we mean something much more general: it could mean the traditional identities around race, ethnicity, nationality, sexual orientation, ability, or other identities. The SEC’s rule, as Aaron Dhir discusses, does not define diversity. Nor does Page define it. Part of the reason Kim’s question doesn’t fully map onto the quota debate is the fact that mixité focuses on one axis of difference, which is both easier to grasp and to measure.  I wonder if mixité’s focus on one axis of difference renders it more effective than broader diversity efforts.  In addition, this particular identity carries substantial weight in the French context, where a quota has existed since 2000 for women to comprise half of all candidates for public office. French people accept the legitimacy of the sex binary, as I discussed in my Parity/Disparity article.  The sex binary performs part of the work of the corporate board quota: a remedy for inequality that targets a difference perceived to be real invites compliance. I realize this point opens up some compelling and even concerning issues about the relationship between mixité and other kinds of diversity. While I cannot address all of those points here, it’s worth noting that in the More than a Woman study, several interviewees conveyed that other kinds of diversity might benefit from the quota.

 

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?

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

John Conley is the William Rand Kenan Jr. Professor of Law at the University of North Carolina. John's principal research and teaching interests have been in law and social science, and intellectual property law.  After serving as a scuba diver with the New England Aquarium in Boston, Massachusetts, John received his J.D. in 1977 and a Ph.D. in anthropology in 1980 from Duke University. Most importantly, he is my co-author.

John’s post is below.

*************************************************************************

I want to respond to Daria’s suggestion “that our method is too limited.” All methods of social science research are limited, in that they can only address certain questions in certain ways. No method gets at all relevant questions, nor does any method have any superior claim to “truth” or “reality” (whatever those words mean). Quantitative analysis, for example, assumes that you know what to count. Surveys depend on knowing what the right questions are.

Our method uses interviews and focuses on narratives. It is frankly interpretive. Daria writes that the board members we interviewed “are in no position to understand the way in which gender might matter or what other things women might bring to the table beyond their gender.” Later, she writes, “However insightful board members might be, they are just in no position to reflect on whether women make a substantive difference.”

Several points: First, I don’t know whether they’re in a position to understand such things. Why wouldn’t they be? It seems wrong to say that “they are just in no position to reflect” on the issue. Everyone has a position from which to reflect. In fact, board members have a unique observational position. It’s not perfect, but no one’s is. Whose perspective would be better? Yes, board members’ perspective is limited, but so is everyone else’s. Daria speaks later of “the benefit of expert insight.” Don’t board members also provide a kind of “expert insight?”

Second, even if they can’t understand such things, it’s not relevant to our purposes. Our question is not whether gender “matters” in some particularly defined sense. Our question, rather, is how board members talk about whether and how gender matters—in other words, what narrative do they provide when asked about that issue? The answer to that question is, in my view, an important piece of cultural data. The fact that the people who elect board members and executives cannot (or choose not to) provide examples of gender making a difference is certainly interesting to me. It says, among many things, that they created or adopted a master narrative about gender difference but have not gotten around to testing it against their experience. Again, that’s really interesting to me. I didn’t expect it.

I’d also like to comment on this statement: “Some of these observations are grounded in real observation, no doubt.  But in many of those interviews, I also hear echoes of stereotype.” This misses the point of interviews. If board members’ narratives contain “echoes of stereotype,” then this is, yet again, a very important piece of cultural data. Daria, what is this “real observation” of which you speak? If board members choose to explain their actions by resort to stereotype, isn’t that a significant bit of reality?

My final comments concern Daria’s statement that “survey work is just too crude an instrument for us to be able to get much qualitative insight.” First, ethnographic interviews aren’t “survey work.” They’re apples and oranges. Surveys elicit responses to very specific questions in order to yield a “crude” measure of attitudes and beliefs—as in surveys about the likelihood of confusion in trademark cases. Ethnographic interviews seek to elicit broader cultural themes. We don’t claim to know what people “really think.” Daria’s comments seem to me to reflect (if I can say that now) a kind of positivist envy. I don’t see methods as hierarchical, or as more or less limited. I see them as complementary, all shedding light on problems from different angles. Interview studies don’t need to be apologized for.

 

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?

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

In my wrap-up post yesterday, I pressed all of the bloggers to clarify, defend, or elaborate on the underlying assumption that board diversity is good for business – an assumption that, I argued, is not supported (and in some cases is contradicted) by the quantitative research on board diversity.  In the following post, Aaron responds.

Many thanks for your terrific summary of the day's posts, Kim – as well as the invitation to think harder about rationales for diversification. 

As you've noted, I've said that diversity may positively impact firm decision-making and overall governance.  This was a dominant theme that came out of my interviews.  So much so, that it's really impossible to ignore.  And unlike your terrific study with John and Lissa, my interviewees supported their general observations with concrete examples of diversity’s importance.  In my book, I've called this a “modified business case” (not very creative).  I see this as different from the business case as typically discussed in the U.S.  The benefits that flow from the modified case - such as more rigorous deliberations, risk assessment, and monitoring - may be very difficult to quantify using traditional financial metrics.  So this isn't an attempt to link diversification with profitability indicators such as return on equity, return on assets, and Tobin’s Q.  Rather, my results dovetail with the broader scholarly literature on “collective intelligence” and group decision-making, which suggests that groups that are heterogeneous along certain identity-based lines often outperform uniform groups, such as when heterogeneous groups are charged with analyzing and finding solutions to complex issues.

That said, even the modified business case has difficulties and only goes so far.  And so, in my book, I argue that going forward it will be essential to revisit the underlying rationales for diversity and to further build a social case for it that is tied neither to the traditional business case nor the modified business case.  The focus on instrumentalist rationales has, in my view, impeded the development of the social case (a point that Lisa makes in her excellent 2011 North Carolina Law Review piece), and an overemphasis on the modified business case would only compound that problem.  The social case for diversity recognizes the exclusionary nature of current board recruitment practices.  It is rooted in a desire to democratize power and equitably distribute access to opportunities.  And it rests on the assumption that qualified women and other underrepresented groups ought to be participants in corporate governance because the boardroom represents a core location of social and economic power.

 

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?

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

Folks – we’re starting off Day 2 of our mini-symposium with the following post from Lisa Fairfax.

Diversity advocates have pointed out (here and here) that one clear stumbling block to increased board diversity is the slow pace of board turnover. 

But there may finally be good news on the turnover front.  An Ernst and Young report notes that the slow pace of board turnover may be “poised to accelerate,” and then goes on to point out that 20% of board seats at S&P 1500 companies “are held by directors nearing or exceeding the common retirement age of 72.”  Even more promising, the 2014 Stuart Spender Index reports that women account for 30% of new directors—the “highest level we’ve seen.”  That same index also reports that the number of independent directors added to S&P 500 boards increased in 2013 and 2014.  These statistics suggest that boards are poised to turnover and that they are poised to use the turnover to enhance diversity. 

Unfortunately, other trends suggest that optimism in this area may not be warranted.  Indeed, the 2104 Stuart Spencer Index reveals that despite the recent increases in board vacancies at S&P 500 companies, “the number of directors added to S&P 500 boards remains considerably less than a decade ago.”  The Index also reveals that despite growing pressure for term limits and mandatory retirements, (1) only 3% of S&P 500 boards specify a term limit, (2) the average age of directors has increased, and (3) many boards have increased their mandatory retirement age.  Indeed, in contrast to the more optimistic outlook of the Ernst and Young report, the Index indicates that 30% of S&P 500 boards have set their retirement age at 75 or older—a stark contrast to 5% with such a retirement age a decade ago.  This suggests that the growing pressure for term limits and mandatory retirements has not proved successful.  It also suggests that turnover will continue to be glacial and hence continue to act as a roadblock for greater board diversity.

Some have suggested that the answer may be a simple one: pressure companies to increase their board size.  And it sounds like a good idea—evidence reveals that almost half of companies increased board diversity by increasing board size.  Except for this: a PWC survey reveals that the second biggest impediment to board diversity is that directors do not want to change their board composition to create a position for a diverse candidate.  So if we are hoping that the turnover game is going to dramatically change, the answer may not be so simple and the future not so bright.

 

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?

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

In this post, I’m going to put on my moderator hat in order to tease out some common themes and differences across today’s posts and to press the contributors (including me) to elaborate on or defend some of their statements and assumptions. 

Let me start, first, with the elephant in the room of board quotas.  As Aaron’s posts make clear, this is an approach followed by many countries, but not the US, which has, not surprisingly, opted instead for a disclosure regime.  Darren also writes about quotas, so he’s given this some thought as well.  And in the comments, Lisa asks whether the potential for popular backlash against quotas in the US would be so strong as to make them counterproductive.

So, I’d like to invite all of our guest bloggers to engage the quota question more directly, as well as ask a pointed question – what purpose do you expect quotas to serve?  Lisa notes that board diversity is an end in itself that provides social and other benefits. And if that is the rationale, then I suppose we need look no further. Indeed, one thing I have noticed about board diversity debates in other countries is that these social benefits of board diversity (it provides opportunities for women and minorities, it counteracts unconscious or other bias, it provides diverse role models, etc) are often front and center in the discussion. 

In the US, however, that is not the case.  Board diversity efforts in the US are nearly always supported with a “diversity is good for business” rationale. Our respondents, for example, uniformly adopt some version of the “good for business” justification, and only rarely, if ever, invoke social, ethical, or fairness justifications. 

The ubiquity of the business rationale is especially interesting in light of the empirical research on diversity’s effects on the bottom line.  I should note here that I am substantially more skeptical than either Aaron or Lisa about diversity’s bottom-line benefits in the boardroom, which in my view are unproven under most conditions and in some cases are contradicted by existing quantitative research showing that board quotas reduce profitability. 

So, to my fellow board diversity bloggers: what is your basis for concluding that board diversity is good for business?  Or am I misinterpreting your statements? Aaron mentions empirical support for diversity’s boardroom effects in terms of “decision-making and overall firm governance,” so perhaps he can elaborate on that. Lisa, while somewhat more agnostic, does link to the wildly popular Catalyst studies showing correlations between diversity and performance, presumably implying that such correlations mean something. 

Which brings me to Daria’s comments about method, which I will engage more fully in a separate post. But, in short, I think the ethnographic method is perfectly suited to the question we seek to engage, which is -- given the lack of empirical support for diversity’s effects on shareholder value – how do directors themselves explain the “diversity enterprise?”   

Whether or not their lack of a coherent story is surprising (Daria thinks not, John disagrees, I’m sort of agnostic) it is quite telling.  And to me, the story it tells is one in which the business case is ultimately irrelevant to the quest for diversity in the boardroom, though that is not what anyone says.  And that, I think, is a very interesting story. 

 

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?

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

The following post is from Aaron:

In my previous post, I discussed the first of the two main regulatory models designed to address diversity in the boardroom—quotas.  In this post, I turn my attention to the United States’ experiment with diversity disclosure.

The statistics on gender representation at the highest levels of U.S. corporations paint a bleak picture. Women hold slightly less than 18 percent of Fortune 1,000 board seats.  Since 2010, the Securities and Exchange Commission has required publicly traded firms to report on whether they consider “diversity” in identifying director nominees and, if so, how.  But here is the catch:  the agency refused to define “diversity” in its rule, leaving it to corporations to give the term meaning.

So what does “diversity” mean to corporate America?  In my new book, Challenging Boardroom Homogeneity (Cambridge University Press, April 2015), I analyze the disclosures that the S&P 100 submitted to the SEC from 2010 to 2013 to shed empirical light on this question.  My findings are striking and will not provide those concerned with equality with much reason for optimism.

Over the four years of my study, virtually all companies complied with the rule by disclosing that they do in fact consider diversity when appointing their boards.  However, only approximately half defined diversity in terms of gender, race, or ethnicity.  Most firms, when defining diversity without regulatory guidance, refer to a director’s prior experience, rather than his or her socio-demographic characteristics. 

Take, for example, Ford Motor Company.  Only two of its sixteen directors are women. From 2010 to 2013, the company provided the same disclosure:  “Ford recognizes the value of diversity and we endeavor to have a diverse Board, with experience in business, government, education and technology, and in areas that are relevant to the Company's global activities.”  Even perfunctory reporting can easily fulfill a firm’s legal obligations under the SEC rule.  Berkshire Hathaway’s disclosures provide a case in point:  “Berkshire does not have a policy regarding the consideration of diversity in identifying nominees for director.  In identifying director nominees, the…Committee does not seek diversity, however defined.”  Insolent?  Perhaps.  But perfectly permissible under the rule. 

Last Fall, speaking at a conference in Washington, D.C., SEC Chair Mary Jo White acknowledged that an air of disappointment surrounds the corporate disclosures submitted under the rule thus far.  Her proposed solution?  Investors and other stakeholders must “make it known that…they want more information on what is being done to promote diversity” and firms must “work harder to identify qualified women to serve on boards.”

Chair White is undoubtedly correct.  Investors and civil society groups must continue to press corporations to address diversity, and firms must expand their searches for board nominees.  By placing the responsibility on the shoulders of these parties, however, she glosses over the SEC’s role in the disappointing performance of the rule.

Many commentators who supported the SEC’s original rule proposal made it clear that they were concerned with “diversity” along gender and racial lines.  But the Commission ultimately left it to firms to construe the term as they wished.  If corporate America’s disclosures are disappointing, then the design of the rule is to blame.

A rule that provides this much flexibility gives corporations no incentive to pursue socio-demographic diversity.  In fact, it may make the situation worse.  How?  In reporting under the rule, companies have demonstrated that they do take some form of diversity into account.  This puts them in a state of legal compliance, which may give them a sort of “moral cover.”  Having played by the rules and checked the appropriate boxes, corporations have little incentive to go a step further and pursue socio-demographic diversity.  Indeed, my study shows that there has been very little change in the content of firms’ disclosures.  For the vast majority, the disclosures contained the same information year after year.

In her remarks, Chair White laid out her own personal conception of boardroom diversity:  “when I speak of boardroom diversity, I mean more than just diversity of professional experience, industry expertise and education.  I mean real gender and minority diversity, which brings with it a richness and variety of experiences and perspectives.” 

Chair White has a point.  Various studies, including my own, suggest that gender diversity – for a complex set of reasons – may have a positive effect on boardroom decision-making and overall firm governance.  What is more, the corporation is a place of significant power in today’s world.  Many companies have nearly as much influence over economic and social relations as government, and women and members of racial and ethnic minority groups ought to be a part of their leadership structures.

In my book, I argue that the SEC should abandon its agnosticism and define diversity as including factors such as gender, race, and ethnicity, thus requiring corporations to consider the socio-demographic composition of their boards.  The Commission should also consider adopting a so-called ‘comply-or-explain’ approach to diversity disclosure.  Requiring companies to either comply with a rule that they consider socio-demographic diversity in composing their boards (and follow other prescribed diversity-related practices) or explain their decision not to do so would nudge corporations with a bit more force than the pure disclosure model currently in effect.  This approach, if adopted, should be coupled with targeted reviews of issuers’ filings.

If well designed, a disclosure regime can yield important benefits.  But it may be ineffective if it gives the regulated entity too much discretion.  If we are to move toward more inclusive corporate boardrooms, the SEC must rethink its rule and the current proxy season is an opportune time.

 

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?

What’s The Return On Equality: Daria Roithmayr

Daria Roithmayr is the George T. and Harriet E. Pfleger Chair in Law at USC Gould School of Law. Daria teaches and writes about the dynamics of law and social systems, focusing on the way that legal regulation and social behavior evolve in response to each other. Her recent book, Reproducing Racism: How Everyday Choices Lock In White Advantage (NYU 2014), explores the self-reinforcing dynamics of persistent racial inequality.

 

Daria’s post is below.

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Hi Kim.  Thanks to you and Darren for putting this wonderful symposium together. 

I want to talk in my post about limits. Reflecting on all our work, I continue to be struck by the idea that our method is too limited to do much more than what we’ve already done.  As insightful as board members might be, survey work is just too crude an instrument for us to be able to get much qualitative insight. Board members might be expert on corporate decision-making, but they are far from expert on the potential substantive effect of gender on corporate decision-making.

So I am not at all surprised that, unprompted, in an open-ended interview, the board members in your study thought that gender did make a difference but were unable to come up with much in the way of examples. They are in no position to understand the way in which gender might matter or what other things women might bring to the table beyond their gender.  And they are limited in what they can say about a counterfactual, though members with a lot of history might have some point of comparison. 

I’m not saying that they have no insight.  Certainly in our interviews as well as Aaron's, we have heard board members say similar things about the effect that women have on process. Some of these observations are grounded in real observation, no doubt.  But in many of those interviews, I also hear echoes of stereotype: women are less sure of the evidence and ask more questions, or women are less risk-prone. In the French case, some of these stereotypes were more blatant than others.

In addition, to the extent that these observations are true, board members are hard pressed to tell us whether it is because the newcomers are outsiders (as French board members report) or because they are women (as the Norwegians report) or both! However insightful board members might be, they are just in no position to reflect on whether women make a substantive difference.

We can help them in that regard. We can (and do) prompt them with potential possibilities to give them the benefit of expert insight. But at the end of the day, even with regard to our results on the French quota, I don’t trust their observations to do more than raise questions we ought to study further.  Their memories are unreliable, their observations affected by their own gender ideologies, and they wouldn't know how to pinpoint or describe the cause of what they were observing in any event. In short, we can't expect them to do the sociological or social psych research in our place.  And of course, we can't do the work ourselves, because of the closed-door nature of corporate boards.

I continue to wonder whether some young start-up corporate board might be enticed to allow an observer to study them, with the promise of improving their decision-making, much as organizational psychologist consultants do for management decision making for many companies. I also wonder whether experiments might lend additional insight. 

In sum, I think the future of this research depends on figuring out a way around these methodological limitations. 

 

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?

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

Darren Rosenblum is a Professor of Law at Pace Law School. He practiced international arbitration at Skadden, Arps, Slate Meagher and Flom LLP and at Clifford Chance LLP in New York from 1998-2004. Darren’s scholarship focuses on comparative corporate governance and international gender equality, and he (together with Daria Roithmayr) has been interviewing board members in France about their views on gender diversity and quotas in the boardroom.  One of the things that I find quite striking is the similarity between Darren’s interviews with French board members and our interviews with US board members, despite differences in law, culture, business norms, and gender norms across the two countries.  Hopefully, this is something that Darren and I can explore in our mini-symposium this week. 

Darren’s post is below. 

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Thank you to Kim Krawiec for pulling together what we hope will be a great conversation about a crucial topic.  I have spent the past decade, on and off, focusing on sex quotas, both those for political representation and corporate governance.  This first post will highlight some of the conclusions of this work, including the most recent piece, co-authored with Daria Roithmayr, More than a Woman: Insights into Corporate Governance after the French Sex Quota, which draws on interviews of men and women board members of a third of France’s CAC 40 firms.

Thinking about quotas must be a comparative endeavor given their remarkable popularity outside the United States.  Over one hundred countries have some form of political representation quota, such as France’s Parity quota, discussed in my article here, as countries around the world internalize international sex equality norms, as I argued here.  More recently, we are seeing a wave of corporate board quotas. Even Germany, a long-standing opponent to such quotas, adopted a quota requiring 30% of board members to be women.

Although many in Europe presume the benefits of quotas, the notion that women’s presence will prove good for growth lacks conclusive proof.  Some studies, such as the one conducted by Credit Suisse study, find this to be the case; others take the opposite view.  While such studies proliferate, I find myself skeptical of these “business case” arguments, principally because of the weak link between board deliberations and corporate success and whatever it is that we presume women bring to the table.  

I’m also skeptical about quotas because of the way they assume that gender comes in binary form.  This binary approach overlooks the complexity of how gender is lived.  Finally, I am skeptical about quotas because they come with substantial costs for men and other sexes, and possibly even for firms who wish to choose people who may not fit within the quota.  Men lose their board slots, and the opportunity to join boards as boards ask women to occupy those seats.  The quota’s binary reinforces a notion of sex difference, whereas interviewees reported that men and women in the board context were more similar than different. On the other side of the equation, quotas benefit mostly elite women and not broader populations.

Notwithstanding my skepticism, two arguments surface to justify quotas: an egalitarian justification and a market justification.  First, with regard to equality, quotas are designed to put into action the idea that the law should be devoid of “fixed notions concerning the roles and abilities of males and females.” Mississippi University for Women v. Hogan(1982). Quotas close sharp disparities between men and women that persist despite decades of educational equality. They might also help to erase the family/market distinction, as I argued in Feminizing Capital: A Corporate Imperative, a dichotomy that has awarded men the public sphere of the market as it relegated women to the private sphere of the family. When gender balance exists in all areas of life, these fixed notions—male vs. female, market vs. family – might finally begin to disappear, as I argued in Loving Gender Balance. Corporate quotas might even serve to advance an unsexed vision of the family, as I described here.  

Second, quotas are also supported by a market justification. Quotas offer firms a unique chance to remake the board’s membership. Here, the quota acts as a term limit, allowing firms to benefit from new and perhaps more innovative blood.  So for example, French firms under the quote have been choosing foreign women who “kill two birds with one stone,” globalizing the firm while complying. Indeed, as Daria Roithmayr and I argue in More than a Woman: Insights into Corporate Governance after the French Sex Quota, quotas might work to improve performance not because of gender but because of the opportunity to include outsiders—people who specialize in labor or environment, or come from outside the club of the Grandes Ecoles, the small network of French universities that creates the French elite. Bringing these outsiders on board might give rise to even greater stakeholderism in Europe, or what Veronique Magnier and I described as a Transatlantic Divergence of Corporate Governance.

Over the next few days, I’m thrilled that we will explore these questions together, as well as other, new avenues of inquiry on quotas and other diversity efforts. 

 

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?

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

Next up is Lisa Fairfax, the Leroy Sorenson Merrifield Research Professor of Law at the George Washington University Law School. Lisa teaches courses in the business area including Corporations, a Securities Law Seminar, and Contracts II, and her scholarly interests include corporate governance matters, fiduciary obligations, board diversity, shareholder activism, and securities fraud. Lisa is also the co-director of the DirectWomen Board Institute, which promotes board diversity by identifying and supporting qualified women attorneys to serve as board candidates. Lisa’s 2005 Wisconsin Law Review article on board diversity was actually one of the first law pieces I ever saw on the topic and was one of the first things we read when we embarked on our project, so I’m especially happy that she has agreed to post with us. 

Lisa’s post is below.

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Thanks so much to Kim for the invitation to contribute to the discussion on board diversity.  I thought I would start by trying to respond to at least one of Kim’s questions: what do diversity advocates hope to achieve, and by extension, what do I hope to achieve?

First and foremost, I think that most diversity advocates today insist that board diversity will improve a corporation’s financial performance.  And while the evidence is mixed, there are certainly several studies suggesting a correlation between diverse boards and better financial returns.  In this regard, diversity advocates hope—as do I—that diverse boards will have a positive impact on firm performance.

Second, board diversity advocates hope that diverse boards will improve board decision-making by undermining groupthink and encouraging boards to consider a broader range of perspectives when carrying out their fiduciary responsibility.  And this is a hope that I share.  But as I have said elsewhere, I do think it is important to be realistic about this process.  And that realism means acknowledging that sometimes whether diverse directors will add a diverse perspective may depend upon factors such as critical mass and the extent to which boards themselves create a culture in which active questioning is encouraged.  That realism also means acknowledging that sometimes when there is true diversity of perspective, the process may take longer, people may feel uncomfortable, groups may feel less cohesive.

Third, diversity advocates hope that diverse boards will be better equipped to navigate the more global and diverse world in which we live, and thus may be better able to relate to corporations’ increasingly diverse employee, customer, consumer, and client base.  I certainly hope and believe that a corporation willing to diversify its board is much more likely to relate to our diverse landscape more generally.  But I will admit that I hope this sentiment does not mean that homogeneous boards need not seek to relate to such diversity.

Ultimately, however, what I hope diversity efforts will do is diversify boards.  To me, that is an end of itself.  And that end is important for at least two reasons.  First, because there is no good reason for corporate boards not to better reflect the workforce and the population.  Second, because part of the reason corporate boards are not more diverse comes back to subtle and unconscious biases that continue to ensure that people replicate themselves in the boardroom and many of the pipelines leading to the boardroom.

So while most diversity advocates would rather focus on arguments suggesting that board diversity is good for business and not just good, my hope is that we can not only diversify boards, but also that we can get to a place where there is no need to justify that diversity as a means to some economic end.

 

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 Rothmayr

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?

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

As some Loungers will already know, board diversity is a topic that I’ve studied for several years. Together with Lissa Broome and John Conley at the University of North Carolina, I have built on the type of ethnographic research for which John, an anthropologist, is justifiably well-known.  At some point during this week’s mini-symposium I’ll put up links to our articles for anyone who is interested.  We are also working on a book on board diversity, which I hope we’ll have finished by the end of this summer.

In this first post, though, I just wanted to talk a bit about what intrigued us about board diversity as a research topic and why we felt it was important to hear what directors themselves had to say about diversity efforts in the boardroom.  We were struck by the frequency with which the business case for board diversity is put forth by the popular press, shareholder activists, and directors themselves, despite the lack of empirical support (we review the literature here, for example).  We wanted to hear directors, in their own words, discuss board diversity – was it actively pursued by the boards on which they sit? If so, why? What benefits did they believe stemmed from a diverse board? Our interest was made all the more salient by events in Europe, where many countries have adopted board gender quotas (a point that will likely be discussed by some of our guest bloggers this week.)  

Working from a topical outline, we conducted open-ended interviews with 57 directors of publicly-traded corporations and a limited number of other persons of interest (for example, institutional investors, executive search professionals, and proxy advisors) asking them to share their views on a variety of corporate governance and boardroom issues, including the effect, if any, of race and gender diversity in the boardroom. The interviews range from forty-five minutes to two hours in length and each interview is taped and transcribed.  As a group, we then listen to each taped interview at least once with transcript in hand, analyzing each interview qualitatively with a focus on the themes that the respondents identify, the emphases given to these themes, the stories (or narratives) that they tell, and the details of the language that they use. We also thematically code the transcripts and use sorting software to get another, complementary view of the frequency and distribution of the various themes. 

As we discuss at length in our published work, several overarching themes have been pervasive in our interviews: First, there is near-unanimous agreement (with only one clear dissenter) that board diversity is a good thing, a valuable outcome that is worth striving for. But second, it is very difficult for our respondents to provide examples from their experience of when board diversity has made a tangible difference. We have heard abundant stories about when other kinds of diversity—what might be called functional diversity: different business backgrounds and skills, for example—have made a difference in how effectively boards do their work. But pressing respondents for comparable stories about demographic diversity has yielded very little beyond awkward silences. Respondents have sometimes commented on that very awkwardness, noting how difficult it is to talk about gender and—especially—race making a difference without engaging in essentializing or stereotyping.

But even if they have found it difficult to give concrete examples of the benefits of director diversity, our respondents have provided well- developed (and perhaps well-rehearsed) conceptual arguments. I’ll be back in later posts to discuss some of those arguments and the inherent tensions in them.

 

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?

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?

Reminder: "What’s The Return On Equality? A Conversation About Board Diversity" starts Monday

This is just a reminder that the Faculty Lounge mini-symposium on board diversity will be held next week.  Regular Lounge readers know that we occasionally host mini-symposia on special topics here, such as the recent Taxing Eggs symposium.  And next week’s topic will be board diversity.

Efforts to encourage greater corporate board diversity are now nearly universal.  Though different jurisdictions employ different methods – from reporting to quotas to more informal public, market, or government pressure – the drive to diversify the boardroom is being felt around the world.  But why?

The Faculty Lounge will host a special mini-symposium on corporate board diversity with guest experts in the field.  What methods are different jurisdictions using to promote board diversity and with what effect?  More importantly, what do board diversity advocates hope to achieve with these changes?  Finally, what do our panel of experts believe will be the ultimate result of these efforts?  

Join us in the Lounge next week as our panel of experts address these and other issues.  Panelists include:

Lissa Lamkin Broome

Wells Fargo Professor of Banking Law and Director of the Center for Banking and Finance

University of North Carolina, School of Law

John Martin Conley

William Rand Kenan Jr. Professor of Law

University of North Carolina, School of Law

Aaron A. Dhir

Associate Professor, with tenure, Osgoode Hall Law School; Visiting Professor of Law, Yale Law School, and Global Justice Senior Fellow, Yale MacMillan Center.

Lisa M. Fairfax

Leroy Sorenson Merrifield Research Professor of Law; Director of Conference Programs, C-LEAF

Kimberly D. Krawiec (a.k.a. me!)

Kathrine Robinson Everett Professor of Law, Duke University 

Darren Rosenblum

Professor of Law, Pace Law School

Daria Roithmayr

George T. and Harriet E. Pfleger Chair in Law

USC School of Law

 

See you all next week!

 

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?