Gender Diversity on Corporate Boards

We have been examining the “mandatory vs. voluntary” debate with respect to corporate social responsibility (CSR). A similar debate has arisen with participation of women on corporate boards. Some countries (particularly in Europe) are adopting mandatory quota requirements. Others are adopting a voluntary approach, for example in the UK where executive search firms have published a voluntary code of conduct.
The recent issue of the Economist has two reports (here and here) discussing the issue. The magazine does not favour a mandatory approach, for the following reasons:

Quotas are too blunt a tool for such a tangled problem. The women companies are compelled to put on boards are unlikely to be as useful as those they place there voluntarily. Quotas force firms either to pad their boards with token non-executive directors, or to allocate real power on the basis of sex rather than merit. Neither is good for corporate governance. Norway started enforcing quotas for women in 2006. A study by the University of Michigan found that this led to large numbers of inexperienced women being appointed to boards, and that this has seriously damaged those firms’ performance.

Available statistics through a McKinsey report discussed by the Economist place India at the bottom of surveyed countries when it comes to women board-members as a percentage of the total. It ranks below the other BRIC countries of Brazil, Russia and China. There is certainly a case for increasing diversity on Indian boards through women participation, although that must indeed be through voluntary measures and not mandated by law (such as by quota).

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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