The push by European Commissioner Viviane Reding to have 40 per cent of all boards of directors for companies listed on the stock exchange in a EU member state made up of women by 2020 is wrong.

Forced quotas don’t necessarily increase the right kind of diversity- Kevin-James Fenech

At least the local National Council for Women seems to be opting for (or at least one of the executive members intimated as much recently) the introduction of imposed gender balance on a temporary basis only.

I would find it a travesty of justice, freedom and equality for any government to impose strict quotas on women sitting on corporate boards. If we really want to improve board performance in this country, there are other more important, and perhaps less superficial ways of doing so.

I’ve written about it before. Suffice it to mention the reform in the law which would stipulate that boards of directors have a balanced and varied team of executive and non-executive directors sitting at board level: each board should have directors with relevant industry experience but also non-related industry experience, directors with legal, financial and operational experience of business, directors with MBAs or equivalent, and entrepreneurs with a sound track record.

A board composed of members (men or women) with such a mixed background would deliver real value to shareholders and stakeholders alike.

The Viviane Reding proposal is well-intentioned but ill-thought out. It is unlikely, based on the experienced of countries which have introduced forced quotas, that the Maltese boardroom (currently dominated by men) would react to this in a positively constructive manner. I actually believe they would rebel to the imposition and seek to undermine or bypass a well-intentioned proposal.

There undoubtedly are plenty of boardroom-ready women who deserve to sit in Maltese boardrooms, yet I am sure that most of them would not like themselves to be imposed on any board and would much rather make it on their own merit.

Evidence from Norway (the first country in Europe to introduce forced quotas) indicates that forced quotas are actually bad for business. When the Norwegian government ordered businesses in 2003 to populate 40 per cent of their boards within five years the end result was ‘window dressing’. The Norwegian business community promoted women who were less experienced and capable than their predecessors just so long as they met the 40 per cent quota.

There are more details about this case study in the research by Amy Dittmar and Kenneth Ahern of the Ross School of Business at the University of Michigan which claimed that corporate value fell by 18 per cent by those companies that were forced to promote women to corporate boards. To my mind, ‘forced quotas’ signal tokenism and do not automatically guarantee a better or more balanced board of directors.

Research in many areas and disciplines, not just business management, shows that when change is forced on a community (in this case, the business community) often the change is rejected. Even worse, that same community tends to find ways around the new imposed rules. This would mean that forced quotas would not deliver better boards but actually serve to undermine them since business people would probably seek to bypass the board and discuss important issues and take decisions out of the board room.

This would defeat the purpose and weaken an institution which actually needs to be strengthened. You simply cannot impose a quota on the business community in such a draconian fashion.

Forced quotas don’t necessarily increase the right kind of diversity. Businesses would strive to change the gender balance to satisfy the law but still seek the same biases, education and experience to preserve the status quo.

Let’s not forget that what proponents of forced quotas are trying to achieve is a change in mentality in the boardroom but the status quo can quite easily ‘discriminate’ between one woman and another based on outlook, mentality and viewpoint. If you think like us, you are one of us, irrespective whether you are a woman or a man.

If quotas aren’t the answer, what is? Women will not feel ‘equal’ in boardrooms if the government imposed it. To quote Helena Morrissey, a UK chief executive of a leading corporate: “In the UK it would be difficult for women to feel very much as an equal member of a board or as a senior manager if there was a quota.”

The free market capitalist system, which the majority in Malta and Europe presumably support, stands on a few fundamental concepts and disciplines, one of which is meritocracy. You make it to the top, you dominate an industry, you lead a business, because ultimately you have the necessary skills, abilities and education, and not because of some draconian law which imposes it on you to appoint a woman to a top position.

www.fenci.eu

Mr Fenech is director-consultant, Fenci Consulting Ltd.

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