That ratio puts Tesco just over the 25% target for female FTSE-100 board membership called for by the UK government’s 2011 review of “Women on Boards”. It is just under the level demanded by the City’s influential 30% Club and well under the overall 40% mandated by the Norwegian government, and proposed and passed by the European Parliament. So would one more female member have changed things at Tesco? Would the board then have spotted accounting problems or reversed the profit declines of the past few years?
Put like that, the questions sound nonsensical. And they are nonsensical. So why are so many politicians and business people coming out in favour of quotas? Large numbers are, or claim to be, convinced that female quotas on company boards are great for the companies, and great for the economy – indeed one of our best bets as a “potential solution to inequality”.
The theory is clear enough. It is about diversity and effective management. Group-think is bad and inefficient: if everyone on a board is much the same, they will miss opportunities, ignore dangers, provide an echo chamber for the same old views. Take an all-male board and insert some women – and straight off, you’ll have different views, greater built-in diversity.
The result? The board will be more effective and more innovative. The company will benefit, both directly, at strategic level and longer-term by noticing and encouraging ignored female talent in its ranks. The economy will grow; at a time when governments are desperately searching for higher productivity and higher growth; here is a business case with social kudos attached. And if signing up gains plaudits from the commentariat, well, so much the better.
And the evidence? Well that’s rather different.
Advocates of quotas claim that companies with more women board members consistently perform better. But the evidence cited for consistent success turns out to come from advocacy units. Academic research tells a different story.
A number of studies using data from the 1980s and 1990s, and a “Tobin’s Q” measure of firm performance, come up with conflicting results – some positive, some negative, and a good number which find no evidence of a relationship at all. In Denmark, which prides itself on gender equality but whose private sector boards are highly male-dominated, data showed no relationship between gender diversity and performance. One large-scale 2009 study, using US data on 2,000 firms and 87,000 directorships and employing a wide range of measures found that, on average, the more female boards members, the lower a company’s performance.
This isn’t very encouraging for people looking for an economic miracle pill. But it is also, predictably, difficult to interpret. Company performance depends on vast numbers of things. Effects apparently associated with the number of women directors might also reflect some other factor which was in turn linked to board behaviour (as, indeed, the academic literature often suggests).
That is what makes Norwegian data so interesting. Norway was a natural experiment. After quota legislation was passed, firms had to appoint women or suffer heavy penalties; so appoint they did. Boards changed. Researchers could compare their performance before and after.
And the result? The greater the change companies had to make in order to reach the mandated 40%, the more likely it was, in the years that followed, that company performance would decline.
This does not, I would emphasise, show that (all) women are worse company directors than (all) men. That is as nonsensical, in reverse, as Christine Lagarde’s suggestion that “Lehman Sisters” wouldn’t have brought banking to its knees. If gender-dependent differences in performance were large or consistent, the evidence on directors and company performance – and on how men and women behave at work – would be hugely clearer than it is. Instead there are two likely explanations. First, just appointing women to boards may be a bad way to get diversity. Second, perhaps diversity isn’t all it’s made out to be anyway.
It has never been clear why replacing three male bankers with three female bankers, three male Oxbridge graduates with three female Oxbridge graduates, or three male accountants with three female ones produces more board diversity. But that is pretty much what growing female representation involves. On the whole, female board members of private companies share the same social and educational experience as the men and, with our changing labour market, more and more of them have similar work histories too.
But female quotas certainly make some women rich. In Norway, there was a scramble to get one of the country’s few experienced female directors onto your board, and what Norwegians called the “golden skirts” piled up multiple lucrative positions.
However, not everyone could hire them. Researchers found that new female directors were, on average, younger and less experienced than pre-quota men who remained on boards. They suggest that companies forced to make major changes at speed often ended up with less experienced directors, but also that the boards were less effective the more they were disrupted.
That sounds very plausible. But it also blows holes in the case for a simple vision of “diversity”. After all, it is exactly those boards which were disrupted – exactly those boards that didn’t hire only the most experienced, well-connected female candidates that had the greatest increase in diversity. And it didn’t seem to yield the promised dividends. One of the few other aspects of diversity on which we have hard data is education levels. And interestingly, having boards that are more or less diverse on that measure doesn’t show any effects at all.
As more and more women enter professional careers and make it into the top echelons of business life inequality between female workers has increased, and done so faster than male inequality. That is actually a positive development, because it the result of female economic success. But the vast mass of women still do traditional jobs, often for very low rates of pay. And I’ve never found any studies that demonstrate a link between high levels of female directors’ pay and changes in female pay levels further down the company.
It is the women at the top, the highly-paid professionals, who are making board-room quotas the feminist cause of the 2010s. Up there, getting females into the boardroom really may seem like a vastly important cause. But the arguments rest on a highly partial interpretation of flimsy data. They don’t offer a magic bullet for the economy, or the well-being of women world-wide. Or, for that matter, for Tesco.