In 2006 all eyes were on Norway, when its government implemented the first mandatory gender quota that required both sexes to be represented by at least 40% on the board of directors. The quota applied to Norwegian public limited liability firms including all the Norwegian companies listed on the Oslo stock exchange (Oslo Børs). For this reason, the gender quota mainly targets large firms and is therefore a powerful tool for boosting gender equality in the corporate world. Despite the great success of the Norwegian gender quota, many other countries are reluctant to follow in Norway’s footsteps. Although some countries have tried to propose a similar mandatory gender quota, the opposition against such a rigorous measure seems to dominate political debate and refrains mandatory gender quotas from being implemented. One reason for the persistent aversion to the implementation of a mandatory gender quota is the uncertainty about the long term effects on important economic factors, such as firm performance. Many opponents claim that the implementation of a gender quota will have a negative impact on economic growth because there are simply not enough “adequate” female candidates for board positions. Since the definition of an “adequate” board of director candidate is highly subjective, we need a more objective measure to gain valuable insights into the true effects of adding more female directors to the boardrooms of large companies.
Empirical research on gender diversity in the boardroom
One way to obtain an objective measure of the adequacy of female directors is through empirical research, and in fact we have seen a boom in the number of publications on gender diversity. I too was so fascinated by the high gender inequality amongst the top executive positions that I decided to write my bachelor thesis on the effect of gender diversity in the boardroom, using the implementation of the Norwegian gender quota for my research design. Although my thesis was focused on the effect on capital structure I found that many recent studies evaluate the effects of gender diversity in the boardroom on firm performance and a large part of these researches also analyse the effects of the Norwegian gender quota. Unfortunately, the literature on this topic has not yet reached a consensus, which makes it impossible to give a definitive and clear answer to the question of if increasing the proportion female directors through the implementation of a gender quota will have a positive or negative effect on firm performance. I got intrigued by the big variation in the results of studies that seemed to evaluate the same phenomenon. So I asked myself: what causes these discrepancies in empirical results?
Possible causes for the lack of consensus in empirical research
There are many possible reasons as to why empirical results do not provide a comprehensive and consistent answer. First of all, there is a problem of data availability on director gender and on confounding factors. The data that a researcher would need to perform a solid empirical study is often scarce or not easily accessible. I have experienced this first hand while collecting data for my bachelor thesis. In many cases, a researcher is now forced to collect data manually from annual reports or buy data from third parties like Boardex. This does not only make the data prone to measurement errors, which therefore leads to inconsistent results, but it also discourages further research and limits the possibility of adding valuable control variables that help estimate the effect accurately. Secondly, it can be argued that focussing on firm performance gives a very narrow view of all the possible consequences of promoting gender diversity in the boardroom. Many researchers report the effect on short term profitability and therefore miss a large piece of the puzzle. This makes it easy to manipulate results in favour of the researcher’s interest, which seems to happen both to support the implementation of gender quota and to discourage female participation in the boardroom. Another reason for the different results is the fact that the different studies do not have a uniform way of dealing with the causality and endogeneity problems. The way in which the researcher tackles these problems has a big impact on the trustworthiness of the results, because it determines to which extent the results demonstrate true causation or simply portray correlation. It seems that through these three issues, it has become very easy for researchers to persuade readers of “false” statements about the effects of gender diversity in the boardroom. In this way, empirical research loses its objectivity and can no longer be considered neutral.
So, in order to gain more universal and unbiased insights into the true effects of implementing a mandatory gender quota, governments and educational institutions such as universities, should promote high quality research by making efforts to collect relevant data on director specific characteristics (gender, age, tenure, experience, etcetera) and make this data easily accessible for students and researchers. I personally would like to continue my research on gender diversity in the boardroom and would like to promote and encourage other people to start analysing this complex concept as well. With more skilled people looking into this important topic of gender diversity and focussing on more than just short term performance, I believe we can make giant steps in finding a consensus about the importance of gender equality in the corporate world. The need for a general consensus is high, since gender inequality in the top corporate positions is still a big issue that cannot be solved by women alone. We need everyone on board, both literally and metaphorically, in order to break the glass ceiling. We share the problems, so why not the solutions? Gender equality is not a problem that affects women only, it affects the world as a whole, so let’s solve it together.