Networks Matter: Women, Quotas, and Board Appointments
By Melissa J. Anderson (New York City)
Recently it was revealed that the European Union’s justice commissioner Viviane Reding was likely to move forward with a proposal to implement boardroom gender quotas. The Financial Times reported that companies throughout the EU’s 27 member states will have to meet a 40 percent target for women board directors.
The FT’s James Fontanella-Khan writes:
“According to the draft, companies larger than 250 employees or with more than €50m in revenues would be required to report annually on the gender make-up of their boards. Those that miss the mandatory quota would be subject to administrative fines or be barred from state aid and contracts.”
Furthermore, a report by the New York Times continued, while publicly traded companies will have until 2020 to meet the target, state-owned companies will have to do so by 2018.
The news comes off the back of two recent studies that showed how personal networks make a huge difference when it comes to board appointments – “who you know” significantly influences which boards you’ll be appointed to, and how much you’ll get paid.
And because most boardrooms in the UK and around the world are dominated by men, women have less of an opportunity to break through – simply because of whose personal networks they belong to and in what context they are there. The research shows that networks matter – and that’s why gender quotas may help close the gap.
Quotas and Fairness
Boardroom gender quotas are intended to remedy institutional inequality around who gets appointed to board seats. As Lord Davies of Abersoch explained in his 2011 report “Women on Boards,” director appointments are far from transparent or fair. The report states:
“Our consultation found that the informal networks influential in board appointments, the lack of transparency around selection criteria and the way in which executive search firms operate, were together considered to make up a significant barrier to women reaching boards.”
That statement is backed up by a new study out of the University of Bristol, which shows that being part of an exclusive social club or members-only golf club increases your chances of being named to a board, if another director belongs to that same club. Having gone to an elite university if another board director also attended one of those universities also increases your chances of getting a seat on that board – but not as much as the social or golf club effect.
The authors, Edward Cowley, Helen Simpson, and Edmund Wright, write, “The early findings suggest that social connections …may still play a role in boardroom appointments. This implies that reduced reliance on such networks will be necessary to increase board diversity.”
Gender quotas are one way to overcome that overreliance on social connections when it comes to board appointments. By relying on the same elite social and golf clubs to source board directors, companies just see a churn of the same old folks – that means the same old ideas and the same tired solutions. At a time when the business world is changing rapidly and companies are faced with increasing uncertainty, the same old ideas and solutions just aren’t going to cut it.
Quotas may encourage companies – which so far have been resistant to hiring more women directors on their own – to look beyond the usual suspects for directors – giving qualified women a shot at a job they wouldn’t necessarily have fair access to. Companies also benefit in that they will reach people with a fresh perspectives on 21st century challenges.
Networks Influence Pay
That’s not to say that women directors shouldn’t put effort into networking. Quotas may assist qualified women in getting a foot through a door that was previously shut to them, but, as the Economist reported earlier this year, having a larger network can increase your pay.
A study by Marie Lalanne and Paul Seabright of the Toulouse School of Economics showed that male directors with large networks made much more than male directors with small networks. Likewise, women directors with large networks made slightly more women directors with small networks.
But there is gender bias here as well. Men with both small and large networks still made more on average than women no matter their network size.
This means the benefits to women board directors of building are twofold. Sure, you may make slightly more than your female counterparts with a smaller network. But you’ll also spread the message wider – women corporate directors are taking charge and growing in number. The more people you network with, the more people who will get a chance to experience a woman leader in action, and hopefully carry the message of gender equality forward.
