Are Quotas the Best Path to Board Diversity?
German lawmakers recently approved legislation requiring that the country’s largest companies have at least 30 percent female representation on their boards of directors. But there could be better ways to achieve more diverse and inclusive boards, according to one association leadership expert.
In their effort to become more diverse and inclusive, particularly in volunteer leadership, should associations consider implementing quotas? That’s the route German lawmakers decided to take last week when they passed legislation that will require that at least 30 percent of board members in the country’s largest companies be women, starting next year.
The Germans joined a host of other European nations that have already adopted similar quota legislation, all of which have succeeded, statistically speaking. So could similar policies help association boards in the U.S. become more diverse?
“My gut reaction is no,” said Glenn Tecker, CEO of the consulting firm Tecker International. “The concern there is, once you establish the precedent of setting a quota, I don’t know who will be empowered to set the next quota. While it may be being done with a benevolent intent this time out, the next time a quota is set, who’s to say it won’t be more malevolent than benevolent?”
At least one European nation is taking a different approach to increasing board diversity. Companies in the United Kingdom have heeded advice from the 30% Club, founded by British money manager Helena Morrissey. The group preaches organic growth in representation by making a business case for gender balance.
“Empirical evidence suggests that companies with three or more women on their boards achieve superior financial results than those with all-male boards,” Morrissey wrote in a recent blog post. “Causality can’t be proved—that this is because of the women—but I’ve noticed that those companies which ‘get’ this particular issue also tend to be more forward-looking on other aspects of good governance… For businesses to perform well today, we need to rebalance male and female attributes and weave in other types of differences too.”
Associations can achieve better representation by altering their fundamental thinking about board governance, Tecker said.
“For a long time, there’s been conversation about competency-based boards and constituency-based boards. Instead, what they should be talking about is something that we refer to as a balanced board—a methodology that is designed to achieve both appropriate representation and appropriate competency on the board.”
Getting there, Tecker explained, starts with a three-step vetting process for potential board candidates. The first step looks at the basic competencies required of a board member and whether a potential candidate possesses the necessary skills. Second, organizations need to find candidates who have particular experience that could be valuable to a board; for example, an association that is considering purchasing a building may want to bring on a board member who recently served on another association board that bought a building. The final step is vetting for perspectives related to gender, generation, ethnicity, culture, and geography.
“All of this is premised on two components on a philosophy of governance,” said Tecker. “One is that the representative governance model, which associations use, requires the board to be both representative and possess the necessary skill sets. The other is the recognition that research tells us very clearly that the more homogenous a group is in experience and expertise, the less creative and innovative it will be.”