To Boost Diversity and Gender Equality, We Need Innovative Solutions

While gender quotas have shifted the attention of companies toward female representation on boards, they have had unintended consequences at other levels.

At the very top of companies, gender diversity remains an elusive ideal. Despite strides toward inclusivity in recent decades, boardrooms still echo with the voices of a select few, predominantly male. According to data from MSCI, the United States finance investment company, women held only 25.8 percent of board seats in the largest publicly traded companies worldwide in 2023. This lack of diversity not only reflects systemic inequalities but also stifles innovation, limits perspectives, and undermines corporate performance.

The Role of Gender Board Quotas

Enter gender board quotas: a bold attempt to shatter the glass ceiling that has long obstructed the ascent of women to positions of influence and decision-making. With women comprising a mere fraction of board seats worldwide, quotas emerge as a strategic intervention to accelerate progress toward gender parity at the summit of corporate power.

These quotas are great for gender balance at the board level, but unfortunately, are kicking the lack of diversity down the corporate ladder. The debate surrounding quotas is far from straightforward. Critics argue that quotas compromise the principles of meritocracy, suggesting that board appointments should be based solely on qualifications and experience. Yet, proponents counter that meritocracy itself is flawed when systemic biases favor one demographic over others, perpetuating a cycle of inequality.

One thing that can be objectively agreed upon is that gender quotas are boosting the number of women in board positions. However, whether these quotas improve gender diversity across the entire top-level leadership in companies remains to be seen.

Gender Board Quotas in India

To explore this, I focused on the context of gender board quotas in India. India introduced gender board quotas over 10 years ago, mandating that certain categories of companies must have at least one female director on their board. As the first developing country to bring in such quotas, India followed the example of developed countries like France, Norway, Italy, and Belgium, which have mandated that a specific proportion of women must constitute boards.

To study the impact of these gender board quotas on diversity, I analyzed data on 184 of the largest publicly listed firms in India between 2007–2017. The regulation requiring at least one female board member was announced in 2013 and enforced on all publicly listed firms from 2015.

Findings from the Study

As expected, gender-focused quotas aimed at ensuring stronger gender balance on boards positively result in more female appointments at the board level. However, at the executive suite level, they are not having the desired effect, and there are significantly fewer women on the executive team than on the board. This suggests that firms are placing such a huge emphasis on the levels of diversity at the board level due to the regulation that they are virtually ignoring levels of diversity at slightly lower leadership levels, where there is no regulatory need to boost diversity.

Comparison with European Countries

These findings differ from those in non-developing European countries that have implemented gender board quotas. Studies of companies in Norway and Italy show that quotas are not having a significant positive impact on female appointments to all levels of senior management – but they’re not having a negative impact either. Conversely, in India, these quotas are regressing gender balance under the board level.

One positive finding from my research is that when a woman with authority – such as an executive director – is present on a board, it significantly enhances the career advancement of women at lower levels. This effect is likely because executive director positions are more powerful than non-executive positions on boards and explicitly include the recruitment of senior management as a job responsibility. Therefore, if women are not only sitting on boards but also have decision-making power, then we can somewhat reverse the negative effect of the quotas on the recruitment of women to senior executive ranks.

Policy and Future Considerations

The success of a policy can only be judged if regulators and companies clearly articulate the policy’s goals. So far, based on evidence from countries that have used these policies, they are effective in increasing female representation at the board level. This is an important goal itself – increasing women’s representation at the highest levels of corporate echelons.

However, if we want these policies to have broader effects, such as increasing female representation in senior management, women hired through these policies should be given the influence needed to promote diversity further down the ladder. This means either giving women on boards decision-making power through executive director positions or enabling systemic shifts that allow female non-executive directors to participate in decision-making and effect change at lower levels.

Conclusion

These findings certainly offer food for thought for countries looking to implement similar policies. Perhaps there should be a greater focus on women at all levels of senior management – not just on the board. Though in the Indian context, it is still early days, and it will take longer to see the full spectrum of results from these policies, there are at least some positives to take in terms of female board member numbers. Hopefully, we will see more fruitful results at all levels in companies with time. But, in the meantime, companies should be looking for even more innovative ideas to boost gender balance across the organization, not just on the board.