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Gender Equality

Explainer: What would Fine Gael's proposed gender quotas on boards actually do for business?

Some experts say that its success in addressing wider gender imbalances in business may be limited.

A NEW BILL currently working its way through the Oireachtas would see a 40% gender quota being brought in for company boards within three years of its implementation.

Women currently make up just over one in four people on all Irish boards, according to the latest Balance for Better Business report published at the end of 2021. The report also revealed that 13% of listed companies had no female directors at all. 

The intent behind the Fine Gael bill has been broadly welcomed – there is evidence that these kind of quotas work and can be beneficial for businesses.

However some experts have said that based on the evidence seen in other countries, its success in addressing wider gender imbalances in business may be limited.

Gillian Harford, who is part of The 30% Club Ireland which wants to see better gender balance at leadership levels, and a former head of diversity and inclusion at AIB, told The Journal that The 30% Club would prefer to see quotas achieved on a voluntary basis, rather than legislation requiring more gender balance on boards. 

“When we’ve looked at progress in other countries in Europe that have gone purely on the basis of ‘let’s mandate for quotas’ we don’t necessarily see the progress being quite as sustainable,” she said. 

Harford gave the example of the UK’s approach in 2010, issuing recommendations to listed companies in the FTSE 100 that they should aim for a minimum of 25% female board member representation by 2015. 

“The FTSE 100 has now gone well beyond 30% representation,” she said. In 2010 women made up only 12.5% of members of corporate boards of FTSE 100 companies.

“But also what you see in the UK, which we’re starting to see in Ireland as well, is that the voluntary approach doesn’t just get you better balance on boards, it gets you better balance in senior leadership,” Harford said. 

Maura Quinn, chief executive of the Institute of Directors in Ireland (IOD), agrees that a “carrot rather than stick” approach is preferable.

“We are seeing huge progress, albeit it might be more slow than most of us would like, but it is actually happening on the ground,” she said.

I’m not really sure this [legislation] is the way forward; the issue of women and gender and boards has become much more focused and much more top of mind – as it always should have been  – for lots of boards. 

She pointed to progress highlighted by the latest Balance for Better Business report, which found that female representation on boards at the largest listed companies (the ISEQ 20) had reached 31%, up from 18% just three years earlier. 

While representation on boards across all listed companies is just 26.2%, this is still an increase of four percentage points on the previous year.

What’s in the bill?

The Irish Corporate Governance (Gender Balance) Bill was introduced in the Dáil by Fine Gael TD Emer Higgins in October last year.

The bill would provide for gender quotas at a boardroom level and require companies to have 33% of each gender present on their board within a year of commencing the legislation, and 40% within three years.

Higgins, who was elected to the Dáil as a first-time TD in the last election, previously worked as chief of staff for global operations in Paypal. 

“I was fortunate enough to have worked with strong female leaders – there was a female vice president at the helm and I was also in Frances Fitzgerald’s constituency and worked as her PA, so I have benefited from having female senior leaders in my life,” she told The Journal.

From a mentoring perspective, I believe women in senior positions, whether intentionally or not, have the power to influence women coming up behind them and show them what is achievable.

Similar measures to this bill have already been adopted by a number of European countries and was recommended by the Citizens’ Assembly on Gender Equality.

“It has always been a bit of a divisive subject, but when we talk about quotas versus targets I really feel we need to look at the quickest way to impact change and I feel that’s through quotas,” Higgins said.

The bill will make provisions for gender balance on the boards and governing councils of designated companies, corporations, undertakings, charities and bodies in Ireland with a small number of exceptions, such as for companies with less than twenty employees.

The quota would be mandatory, but is built on the ‘comply and explain’ model. This means companies that do not meet the quotas would have the opportunity to explain why they could not meet them before any action is taken to compel compliance.

Higgins said she does not believe a list of potential reasons should be included in the legislation as the aim is to encourage companies to meet the quota, but exceptions could be made if firms can prove they made a “genuine effort”. 

“You could have a company that interviewed X number of people and offered it to X number of people and they were turned down, so it would be procedural,” she explained. 

9755 Emer Higgins Sasko Lazarov / Rolling News Sasko Lazarov / Rolling News / Rolling News

Companies will be required to make a statutory declaration in their annual return that it complies with the gender balance requirement. They would then receive a certificate of compliance.

If  a company fails to comply and cannot adequately explain its reasons, a High Court order directing compliance could be sought under the legislation. 

The bill has gone into the Private Member Bill lottery and Higgins is hoping it will be pulled out and heard in the coming weeks. 

“‘I’d love to get it on the agenda in March for International Women’s Day, it would be a good way to mark that,” she said.

The Norwegian experience

In 2003, Norway became the first country in the world to impose this kind of gender quota on company boards, requiring almost 500 companies to increase the proportion of women on their boards to 40%. 

Initially, this was based on voluntary compliance, but following a review of its operation in 2005 the government deemed progress insufficient.

The Prime Minister announced the quota would be mandated and companies that did not comply would face liquidation. By 2008 all firms subject to the quota had complied.  The percentage of female chairs on boards also increased from almost zero to 10%.

The Norwegian model is often cited as an example of the impact quotas can make, but it is not a perfect solution. 

CEOs and middle-management

While there was a clear knock-on effect in the area directly impacted by the legislation in Norway, it did not have the desired effect lower down the chain. The percentage of female CEOs remained low at 5% in listed companies and 10% in unlisted companies ten years after the legislation was first put in place. 

“When you look at some of the European countries that have gone for quotas, they meet their board numbers, but it hasn’t translated into growth in the number of female executives – the focus was just on meeting the board quota,” Gillian Harford explained.

“Actually when they introduced quotas in Norway, a number of companies de-listed because the consequences were so great – it was just easier to de-list. Our philosophy is that 30% is the floor, not the ceiling, and what we see in other European countries is that once they meet the quota they stop.”

She said the quotas in Norway resulted in women leaving senior executive and CEO roles to take on board roles, resulting in a drop in the number of women in those executive roles. 

A report from European Women on Boards, published earlier this month, found that out of 668 companies, just 50 had a female CEO. Only 169 companies had at least one female member of the C-suite [executive-level managers] and just 9% of chairs of boards were women. 

Harford said companies in Ireland, whether they are indigenous or multinational, are starting to focus on ensuring there are more women in these positions, but there is a lot of work to be done. 

“You solve the problem all the way through the pipeline so, yes, you might need more focused action around targets at the most senior levels, but it really needs to start at every point in the career chain, starting at entry-level,” she said. 

Fine Gael’s Higgins said the reason for targeting boards is to inspire a “cultural change” in companies that would result in reforms in talent acquisition strategies, HR strategies and interview panels.

“The executive level is a bit trickier because you need that pipleline of people to want to get into that level and obviously it’s a fulltime role, whereas people can be on numerous boards,” she said.

It’s also less intrusive on a company, you’re not dictating who they should have running their executive side, instead you’re making sure they have diversity of thought and that inclusion of both genders at board level. 

“It’s as much about visibility, breaking down those stereotypes and showing young women that they can pursue careers in business or what may be considered male dominated areas.”

IOD chief executive Maura Quinn said that while many companies are making good progress, there needs to be a shift in the way board positions are filled.

“We still have a way to go in terms of a mix of skills around the table, they’re still very focused on finance, corporate governance and risk, but not so focused on cyber-security, digital skills – which is a huge area – and ESG [environmental, social and corporate governance] and there is a huge deficit there at board level.

That is something they need to play catch-up on quickly. Marketing is still a skill that’s very undervalued at board level and human resources is another area that is undervalued.

A recent survey by the IOD found that 34% of board members said their primary board did not have a succession plan to replace board members.

“If they’re not planning for succession, they’re not planning for diversity,” Quinn pointed out. 45% of board members in the survey said they recruited to fill vacant seats as a direct approach from another member of the board.

“We all gravitate towards people like ourselves, it’s human nature, but the problem with doing board recruitment in that kind of unofficial way is that you’re appointing people who are mirror images of yourselves,” Quinn said.

“You’re not looking for somebody who will think differently and challenge the way you think and ask the awkward questions.”

Cost and performance concerns

There was opposition to the legislation in Norway from business representatives and in other countries that implemented similar laws. However research in the years afterwards found it imposed negligible costs on firms.

In fact, diversity may be good for business. 

Research by management consultancy firm McKinsey, published in 2020, found that companies in the top quartile for gender diversity on executive teams were 25% more likely to have above-average profitability than companies in the fourth quartile. 

The research encompasses 15 countries and more than 1,000 large companies. 

The research also found that the greater the representation, the higher the likelihood of out-performance.

Companies with more than 30% women executives were more likely to outperform companies where this percentage ranged from 10 to 30. 

Dr Kara McGann, head of social policy at the business representative group IBEC, said gender diversity at this level has a number of other non-financial benefits for companies too. 

“Gender balance on boards offers several benefits in terms of board governance, including more robust deliberation, disruption of group-think, more effective risk management, higher quality monitoring of management, and because searches for women board members often lead to candidates who may not fit the typical profile, women end up bringing more diverse experience in a wider variety of functional areas that may not have been present,” she said.

According to the research from McKinsey, companies with greater ethnic diversity also outperformed those with a lower score in this area.

In a 2019 survey by the Institute of Directors in Ireland (IOD) the vast majority of respondents said that the race of their boardroom was 97% Caucasian. 

The IOD’s Maura Quinn said there is a general recognition of the need for diversity in all forms.

“I think we sometimes in Ireland are focused on board diversity through a prism of gender and sometimes we forget that we’re moving into being a more multicultural society,” she said.

We have a long way to go before we see ethnic minorities represented on Ireland’s boards.  There are other issues such as age and we need to look at ability rather than disability. I think it’s important that we don’t lose sight of that in this discussion because it could make us maybe lazy if we’re only looking at diversity in terms of gender. 

Spread too thinly’

There was also an argument in countries with quotas that the number of qualified women to choose from was so low that they would be spread across multiple boards.

Dr McGann said evidence from Norway found that when their quota system was first implemented, a small group of women called the “golden skirts” held many different board positions in different organisations.

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“Given that quotas simply require a certain number of women to be present in a role, this imposed number can distort the real purpose that quotas are trying to achieve, that of gender parity and inclusion,” she said. 

However according to ISS Analytics, 19% of female directors of Europe’s STOXX 600 companies sit on at least three boards and 15% of male directors also sit on at least three boards.

ISS research also found female directors are less likely than men to sit on five or more boards. 

There are fewer women than men in Ireland who are qualified for these top positions, but there is a currently a pool of highly qualified women waiting in the wings, so Gillian Harford rejects suggestions from businesses that “the women don’t exist”. 

When asked about the clause in the legislation that will allow companies to explain why they have not complied with the mandatory quota, Harford said she struggles to think of a “good reason” for not having a more balanced board.

We’ve seen that rhetoric – the women don’t exist – so we would challenge that and if the chair or the CEO said that I would invite them to come to The 30% Club where we have a directory of incredibly talented women who are very interested in taking a post on an Irish board. 

“So if anyone says their company can’t do it because the women don’t exist, I say to them ‘I can show you 150 today and you can take your pick’.”

Harford said in other countries with quotas companies have justified failing to comply by stating that their boards are at early stage of tenure and they need to wait for a vacancy to come up. 

“But we’ve seen boards adopting voluntary targets where they’ve added an additional post, so it’s hard to see how you can achieve better progress by putting in loopholes, compared to working in partnership with businesses and getting them to really step up because they think  it is the sensible and right thing to do.”

The wider causes of this inequality

IBEC’s Dr McGann said these kinds of measures may offer a “quick fix” to boosting female representation on boards, but alone they do nothing to remove existing barriers and deeper-rooted issues preventing many women from progressing up the corporate latter. 

“Quotas can be seen as a panacea to gender balance, yet this is not usually the case,” she said. ”

Often the introduction of quotas can yield the perception that the work is now done with those introducing them congratulating themselves on the achievement of surface-level changes. This fails to consider the broader pervasive culture and stereotype issues in business and society which are not fixed simply by having more women on the board.”

She said a whole of society approach is required to tackle the underlying issues preventing gender balance. 

“This systemic issue concerns gender norms and stereotypes, it is rooted in unconscious bias and attitudes towards the role of men and women in all aspects of our society, from the jobs and careers they hold, to their responsibility for child and elder care,” she said.

In the workplace that can be portrayed by multiple forms of gender inequalities which can result in the gender representation issue that feeds the gender pay gap, and the lack of women in executive leadership and board positions.

Emer Higgins TD said she agrees that more work is needed to address the societal issues at play, but she said these kinds of direct measure have a role too.

“Yes the quotas are a radical leap and they don’t need to last forever, but we need something to shock into action because otherwise progress is too slow,” she said.

“In 1993 a target was set of 41% female representation on State boards and it took 25 years to achieve that target. I don’t want us to wait another 25 years.”

She said seeing more women at the board table will empower other women, providing role models for others in those industries. 

Impact of pandemic

Higgins said one area companies will have to watch closely is the impact of hybrid working on female employees now that the country has moved out of Covid restrictions.

“Working from home has benefited women who may be more likely to have to juggle tasks in the home and childcare,” she said.

But while it has been a benefit to women we need to be careful not to fall into the trap of having a situation where more women opt to work from home than men. We know that visibility has a huge part to play in relation to promotions and career trajectory.

“We need to make sure that if more women than men work from home there is an acknowledgement of the role every employee is playing.

“My own view on it is that if we have more women in the board room overseeing the policies being implemented, like the internal HR policies, there’s a better chance of mitigating those factors and making sure no one is left behind if they choose to work from home.”

This work is co-funded by Journal Media and a grant programme from the European Parliament. Any opinions or conclusions expressed in this work is the author’s own. The European Parliament has no involvement in nor responsibility for the editorial content published by the project. For more information, see here.

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