Quotas are abhorrent, and possibly illegal, but that didn’t stop California Democratic Governor Jerry Brown from signing into law a requirement that all publicly traded companies in California must have at least one female director by the end of 2019.
By the end of 2021, the number ratchets up to two or three females for boards with more than five directors; noncompliance will generate fines of hundreds of thousands of dollars.
The message to all women: You can’t get there on your own.
This is one of many occasions when it would make sense to send our progressive lawmakers like Jerry Brown to Europe. Not permanently, of course, but just long enough to see why policies like mandating that companies hire women directors do not necessarily work out as intended.
Quite frequently, countries like France or the U.K. have lurched ahead of the U.S. on left-leaning legislation and can provide real-time results of whether such policies work out.
So it is with demands that companies feminize their boards of directors. In 2008, Norway passed legislation requiring that the boards of publicly traded companies be 40-percent female.
The penalty for non-compliance was dissolution. That’s right, if the companies failed to meet the quota, the government threatened to put them out of business.
Other EU countries followed suit, with many demanding a 30-40-percent standard and some imposing the ultimate penalty of dissolution for failure to comply. The U.K. was an outlier in that it chose merely to issue guidelines.
The fiat to bring women onto boards generated pushback in Norway, as it has in California. Executives worried that boards would be stuffed with women who knew nothing about their enterprises or that the relatively few women in senior executive ranks would be swamped with requests and would be spread too thin.
Resistance was so keen that some companies shrank their boards so as to raise the percentage of women. Other firms went private so as to escape the mandate altogether.
In California, businesses have also pushed back. Critics of Brown’s measure point out that by focusing on gender, other measures of diversity, such as race, would not receive adequate attention.
In addition, many say the law is illegal since it covers companies headquartered in California even if those firms are incorporated in Delaware. Historically, companies have been regulated by the states in which they are incorporated.
Also, business executives privately worry that there aren't enough senior women to stock those California board rooms. Many of us recall that during the financial crisis, some of the women serving as directors for the nation’s largest banks were later criticized for lacking know-how that might have helped avert the financial collapse.
It was also thought that female university presidents or women who headed nonprofits might have provided politically appealing gender diversity but were not up to speed on the nuances of collateralized debt obligations.
Realistically, a great many people were clueless about the billions in worthless paper that rest on mountains of subprime loans. It wasn’t just females who were failing.
The Norwegian policy has been in place for 10 years and its record is illuminating. According to The Economist, some of the worst fears have not materialized, but neither has the heavy-handed dictate done women much good.
On the plus side, it turns out that women are not significantly more stretched (or “overboarded”) than men and that companies have not visibly stocked their ranks with “token” females.
But disappointing to advocates, the rush to feminize the board room has not produced significant gains for women at the lower levels of company ranks.
In Norway, only 7 percent of the biggest companies have female CEOs, while in France, which adopted quotas in 2011, the figure is even lower at only 2 percent. Those figures make the U.S., where some 5 percent of Fortune 500 CEOs are women, look pretty good.
According to a study published earlier this year by the Berlin-based German Institute for Economic Research (DIW), the story is much the same in Germany. The Germans enacted a rule that boards go 30-percent female in 2016, but they have seen no increase in the number of women ascending to senior management roles.
One of the most compelling arguments for gender diversity on corporate boards has been published by advocacy group Catalyst, which claims that Fortune 500 companies with the highest percentage of female directors had significantly better financial performance than those with the lowest.
Northwestern psychology professor Alice Eagly disputes that analysis, calling the conclusion “naive"; she argues that other factors account for the apparent advantages of gender diversification on boards.
Other studies have come to a similar conclusion. A “rigorous” analysis of peer-reviewed academic research on the topic by Wharton Management professor Katherine Klein concludes that “companies do not perform better when they have women on the board. Nor do they perform worse.”
Mandating more women on boards thus appears to be a feel-good exercise in this #MeToo era and a politically appealing gesture by Governor Jerry Brown, who is finally retiring in January. But it won’t speed up women’s ascent to the C-suite; they’ll have to earn that, and my guess is that they will.
That will be better for women, and the boards on which they serve.
Liz Peek is a former partner of major bracket Wall Street firm Wertheim & Company. For 15 years, she has been a columnist for The Fiscal Times, Fox News, the New York Sun and numerous other organizations.